Inside India newsletter: AI is exposing cracks in India’s growth story as it hits high-paying IT jobs
Welcome to the latest edition of “Inside India”—your one-stop destination for stories and developments from the world’s fastest-growing large economy. In this article, we will explore how artificial intelligence (AI) is impacting India’s information technology (IT) sector and, consequently, the broader economic landscape.
The Role of IT in India’s Economic Growth
Over the past two decades, India’s IT sector has been a cornerstone of the nation’s economic growth. With approximately 10 million to 15 million people employed in IT services and business process outsourcing, this sector has anchored the aspirational middle class in India, driving consumption in various sectors such as real estate, travel, and education.
However, recent developments in AI are beginning to expose critical vulnerabilities in this growth story. As companies shift away from traditional volume hiring practices, the landscape of employment in IT is changing, raising concerns about the availability of quality jobs.
The Current Employment Landscape
For the last five years, gross hiring by IT firms averaged around 230,000 new employees annually. However, in the financial year ending March 2026, this number dropped to approximately 170,000, indicating a significant decline in job creation within the sector.
According to a recent report from Bernstein, a global equity research firm, the shift towards AI-driven solutions threatens to deepen an employment crisis in India. The letter addressed to Indian Prime Minister Narendra Modi highlighted that the jobs traditionally held by IT professionals, which are often high-paying and productive, are now at risk due to the rise of generative AI technologies.
The Impact of AI on Job Quality
AI is not just a technological advancement; it is fundamentally altering the dynamics of the job market. Previously, India’s IT sector outperformed its global counterparts due to a vast talent pool available at relatively low costs. However, the advent of AI has shifted the focus from labor arbitrage to tech arbitrage, challenging the traditional employment model.
Shumita Sharma Deveshwar, chief India economist at GlobalData TS Lombard, warns that without adequate job creation, India’s consumption-led economy will struggle to grow. This limitation could hinder investment demand, especially as the global economy faces risks from declining export growth.
The Manufacturing Sector: A Missed Opportunity
Despite the government’s “Make in India” initiative, which has been in place for over ten years, the manufacturing sector has not seen the expected renaissance. Experts argue that India has struggled to increase the share of manufacturing in its economy, which is crucial for shifting labor from agriculture to factories.
Currently, around 45% of India’s workforce relies on agriculture, which contributes only 15% to 16% of the country’s GDP. This disparity highlights the pressing need for job creation in sectors beyond agriculture and IT.
Government Response and Industry Adaptation
In response to the challenges posed by AI, India’s IT minister Ashwini Vaishnaw acknowledged the disruption to jobs in the tech sector, describing it as a “real challenge.” He emphasized the importance of upskilling and reskilling the workforce to adapt to the changing job landscape.
However, Alexandra Hermann Prasad, a lead economist at Oxford Economics, pointed out that while not all jobs are at risk of being replaced by AI, a significant issue lies in the workforce’s lack of skills to transition into complementary roles that benefit from AI advancements. Weak overall education outcomes further exacerbate this problem.
Job Cuts and Restructuring in the IT Sector
As companies like Cognizant implement AI transformation programs, job cuts are becoming a reality. Reports indicate that Cognizant’s “Project Leap” could result in the layoff of up to 4,000 employees. This trend is not isolated, as India’s largest IT firm, Tata Consultancy Services (TCS), has also announced plans to hire only 25,000 fresh graduates this year, a significant reduction from the average of 40,000 over the past three years.
Industry analysts note that net hiring by India’s top five IT companies dropped by around 7,000 in the financial year ending March 2026. This indicates a clear shift away from volume hiring towards a focus on productivity-led growth.
The Future of IT Jobs in India
The IT sector is undergoing a structural reset, where companies are prioritizing productivity over large-scale hiring. Traditional IT roles are evolving to include AI capabilities, necessitating skills in areas such as large language models.
Experts believe that as the industry adapts, the demand for entry-level positions may decline, further complicating the job market for new graduates. This shift could have long-term implications for India’s economic growth, particularly as the country relies heavily on its demographic dividend and domestic consumption.
Conclusion
As AI continues to reshape the IT landscape in India, the country faces significant challenges in maintaining its growth trajectory. The decline in high-paying IT jobs, coupled with a lack of quality employment opportunities, poses a risk to the aspirational middle class that has been a driving force behind India’s economic expansion. The need for effective upskilling and reskilling initiatives is more critical than ever to ensure that the workforce can adapt to the changing demands of the job market.
Note: This article reflects the current trends and challenges facing India’s IT sector and the broader economy as of April 2026.
