The Indian IT industry was birthed and fostered by the ‘first world problems’ of large businesses in the West. It has made us a lot of money but also created a nation of tech drones—who offer labour not products. AI can now do that high-volume, repetitive work without errors and lower cost. What will we do now?
Why IT matters: In numbers
One: The Indian tech industry (including IT services, business process outsourcing (BPO) and hardware) employs 5.4 million people—and is the country’s largest job creator in the white collar sector.
Two: Exports of services (rather than goods) have tripled since 2005—accounting for 7% of the world’s GDP in 2023. Indian exports have jumped from $53 billion to $338 billion in that period. Our services exports will touch $800 billion and account for 11% of our GDP. IT accounted for 47% of all Indian services exports in 2023.
Point to note: Our service exports have been a boon in the midst of the Trump tariff war—which is aimed solely on goods.
Three: Software services generate over $245 billion in revenue each year—of which $205 billion comes from exports. India controls 55% of the global IT outsourcing market. Our biggest client is the United States—which is the destination for 54% of our exports.
To sum up: Any disruption to the Indian IT industry will have a domino effect across the Indian economy.
The secret of Indian IT’s success
The Indian IT industry was birthed and fostered by the ‘first world problems’ of large businesses in the West—especially the US:
Running a large enterprise operation requires an enormous amount of repetitive, transactional work, whether it’s data entry, call center operations, revenue cycle management, invoice reconciliation, or payroll processing. The work is gritty and behind-the-scenes, operationally complex, and not the core competency of the business. The work can also be inconsistent and seasonal, such as with increased customer service needs around the holidays; annual employee turnover for some functions can be as high as 30-40%.
It’s way easier and cheaper to hire Indian companies like TCS, Infosys and Wipro to get this work done—hence, the offshoring boom that has sustained Indian IT since the 1990s. Our firms are essential across industries—from banking and financial services to healthcare, hospitality, logistics, and retail. The chart below shows you the broad contours of the BPO sector—and the staggering revenues of its biggest players:
Enter, the machine
Unfortunately for our economy, AI can now do the same job as most Indian engineers—necessary and high-volume, yet mundane and repetitive work—but with even greater benefits (at least on paper):
BPOs can have prolonged turnaround times for their work output, can be prone to human error since their employees lack individual accountability, and can be incapable of completing certain tasks satisfactorily because they lack the context and authority to do so. All of these factors culminate in a less efficient and often frustrating experience for the end customer. With AI, startups can now give customers the best of both worlds and enable enterprises to in-house their own customer experience and back-office operations in a high-quality, scalable, and cost-efficient way.
They are, in industry speak, ‘prime disruption targets’ for AI startups—the first in their firing line. And they’re already wreaking damage.
The numbers: are already worrying. Over the past year, the biggest Indian IT players—be it TCS or Infosys—registered the slowest growth (3.8%) in revenues—and hired the fewest employees (60,000) in their entire history. Then there are the layoffs: 50,000 software engineers were laid off in Bangalore. But this is just the snowball—a prequel to the avalanche on the horizon:
- According to the WEF’s Future of Jobs Report, by 2027, 83 million jobs will be lost worldwide—and only 69 million new ones created—resulting in a net loss of 14 million jobs.
- The ILO predicts up to 70% of existing jobs in India are at high risk due to automation and AI.
- The Bank of Baroda estimates that AI could displace 20-25 million jobs in India by 2030—mostly in IT services, customer support, retail, and finance.
- Goldman Sachs estimates that AI could automate up to 44% of current software development jobs.
Point to note: It won’t just be entry level hires that are shown the door. The most endangered are in the middle:
Indian tech firms currently have excess staff in two categories: senior managers and managers. The ‘bulging middle’ typically refers to managers who are between senior leadership and front-line employees. “When automation fully sets in, tech firms may eliminate a large number of people in these two senior layers,’’ [BS Murthy, CEO Leadership Capital] predicted.
In the US, everyone from Salesforce to Amazon, Meta and Google are getting rid of middle managers—who account for a big chunk of the recent layoffs. Reminder: Mark Zuckerberg recently predicted mid-level engineers will be replaced by AI by the end of this year, as well.
To sum up: “Large corporations are not spending any additional money this year, instead they want things to be done with fewer people and with less money’’—and AI offers the ideal solution—not the Indian engineer.
So what will Indian IT do?
Most of our tech titans say they plan to lean into the AI disruption:
Wipro COO Sanjeev Jain said that they’ve seen a 140% increase in AI adoption in existing projects, and Infosys announced that they have more than 100 new generative AI agents deployed within their client base. And Accenture, which specializes in both consulting and outsourced work, recently announced $1.2 billion in new bookings alone for generative AI projects.
Their earnings calls are similarly upbeat—promising to build language models and develop AI agents of their own.
But, but, but: All of that big talk begs the big Q: Who is going to do any of this? Indian IT’s greatest problem is that it is not built to either lead or embrace AI disruption—for structural reasons. Let us explain why.
Problem #1: An apple is not an orange
We have built our IT empire on offering cheap labour—not building products:
Most BPOs charge on a time-and-materials billing model and then charge a ~20-30% markup on that labor: their business model depends on employing people and selling the output of that labor to customers. Overhauling that model to become a product-first AI-native business would be a monumental undertaking that would dramatically compress their margins, kill their current cash cows, and distort the company culture. It would be an exceptionally difficult transformation for any company to make, let alone a public company that would be heavily scrutinized by the public markets.
The money crunch: To pivot toward offering high quality AI solutions, these BPO companies need to hire “first-class, AI-native teams” that know how to leverage the latest models, tools and know-how. But it is almost impossible to spend that kind of money when you are a) losing revenue and therefore b) cutting costs and hence c) can’t afford to spend on something that isn’t making big moolah right now:
Peter Bendor-Samuel, founder of Dallas-based consulting and advisory firm Everest Group, said that while customers are asking for lower prices and the productivity that AI promises, there have been few opportunities to make money from it for the IT services firms. “Everyone is talking about it (AI), but it is delaying significant IT spending and slowing down the growth of the tech services market," said Bendor-Samuel. At the same time, he pointed out that publicly, the IT services companies were on a brave face “and talking about all the work they are doing, the investments they are making and how excited they are.”
Problem #2: An army of tech drones
Let’s start with the really bad news. We may have millions of engineers, but most of them are functionally code-illiterate. Only 18.43% are employable in the software sector—and a mere 3.84% can perform tech roles in startups. The reason, according to Tanay Pratap, YouTuber and founder of Invact Metaversity:
“Indian IT services don’t code,” Pratap said. “Thirty years of IT revolution in the country, but we still don’t know how to produce coders at scale.” He added that even when graduates come out of universities with a computer science degree in India and join IT firms, their ability to code still remains questionable.
At the very least, we don’t have many top-level coders in India—most leave for better prospects overseas. The reason: Indian IT companies are built around offering services—not creating products—“meaning they don’t tend to hire top-tier talent for coding and software engineering.”
AI can already do it better: As Siddharth Pai points out in Mint, software development involves two kinds of work:
[F]irst, an effort to write code that will ‘compile’—in other words, it must be syntactically and logically accurate so that when it is run through its first tests on a computer, it does not result in an ‘ab-end’ or abnormal ending, thereby forcing the programmer to go back and look over the code again for, say, a missed comma that may have caused the ab-end.
The first-generation of AI assistants have already mastered this task. According to GitHub, coding tools like Copilot now generate nearly 50% of new code in programming projects. In the words of a software developer: “It's about automating the absolute code monkey work, that is what 90% of enterprise development consists of”—also much of outsourced IT projects in India.
Also this: It’s all very well for big Indian IT to talk up offering AI solutions to their foreign partners, but large corporations are looking instead at “niche specialist firms” for that kind of work. Leading industry analyst Phil Fersht, CEO says, “Many of the leading Indian firms lack depth of resources in specialist consulting and are too focused on lower cost delivery talent.”
Problem #3: Show me the engineers!
The second task of software engineering, according to Pai, requires higher-level thinking—more so as AI will add its own complexity to the task at hand:
However, as software systems grow increasingly complex, with billions of lines of code, the reliance on AI tools to maintain and expand these systems will increase, shifting the bottleneck from code writing to the speed at which humans can review machine-generated output. As a result, the role of developers may shift from writing code themselves to supervising and refining AI-generated output.
Yes, AI tools are becoming better at negotiating complexity—but for the foreseeable future, only humans will be able to understand—in the many senses of that word: “It’s the learning ability. It’s the ability to process on the fly. It’s the ability to pull together disparate bits of information.”
But, but, but: Our developers are trained—by both our institutions and their BPO employers—”to work within strict guidelines to create syntactically correct code”—not to supervise an AI that performs that job:
Most Indian engineering graduates, be it IT or electronics engineers, fail when they are expected to apply basic principles to solve real-world problems. With neither the requisite analytical skills nor a commendable command of the domain, they flounder. They need “specific” training.
The best among us seek that training overseas—and never bring it home. Because… again, a tech ecosystem still driven by the BPO mindset offers neither opportunities or paychecks:
According to data from Tracxn, Indian AI startups attracted just $171.4 million across 30 rounds in 2024, and a mere $12.5 million across two rounds in Q1 2025. In stark contrast, China raised $3.3 billion in 2024 and $220 million in Q1 2025, while the US attracted a staggering $34 billion in 2024 and $6.2 billion in just the first quarter of 2025.
Data points to note: A study by the Indian trade association found that only 17% of our IT workforce has the “technical and cognitive skills needed for AI-era jobs”—even though 92% of Indian companies cited AI integration as a business priority. Also this: Only 10% of Indian startups were classified as deep tech ventures in 2024.
An important side-note: A recent New York Times report showed that the rise of AI tools has not made lives easier for software engineers. Rather than giving them more time to be creative, team leaders are now under pressure to produce as much code, with greater speed and fewer people. Sure, AI allows you to be more creative–but only if you’re an experienced programmer.
The bottomline: We leave you with this pithy quote from Infosys founder Narayana Murthy who said: “The future belongs to those who create, not just those who code." Reminder: Despite earning billions of dollars in revenue, none of India’s IT giants developed a single proprietary software platform or product. Ah well, those who cannot do, preach.
Reading list
- Andreessen Horowitz investor Kimberly Tan wrote a controversial blog post—on why AI will upend the BPO business.
- Mint has two very good (but paywalled) pieces on the effect of AI on Indian IT—this column by Siddharth Pai and the debate sparked by Tan’s take on BPOs.
- The Hindu looks at which positions are the most endangered—and how they will affect the economy.
- Fortune offers a big picture view on the two crore jobs at risk—and how the industry can save itself.
- For a far more optimistic look at our IT future, read this piece in Quartz.
- Hacker Earth and Analytics India look at the shocking lack of coding skills.
- New York Times looks at the unintended consequences of the pressure to use AI tools in the US.
- Business Standard has the latest numbers on our IT economy.
