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For two decades, India’s information technology (IT) sector has been a cornerstone of its economic growth, fueling consumption and creating a burgeoning middle class. But, the rapid advancement of artificial intelligence (AI) is now challenging this established model, exposing a critical gap in the labor market: a shortage of quality jobs.

Despite global disruptions, including the conflict in the Middle East, the International Monetary Fund (IMF) recently reaffirmed its forecast that India will remain the fastest-growing major economy in 2026. However, a recent report from Bernstein warned of a deepening employment crisis, particularly within the IT sector, as AI threatens traditional roles.

The IT sector, encompassing services and business process outsourcing, has historically provided relatively high-paying jobs that spurred growth in related sectors like real estate, education, and services. Bernstein estimates that 10 to 15 million Indians employed in these fields have been key to the country’s economic expansion. “Gen AI now challenges that template,” the firm stated.

India’s competitive advantage in IT, previously rooted in a large, low-cost talent pool, is being eroded by AI. Experts suggest the equation has shifted from labor arbitrage to tech arbitrage, placing stress on the India growth story, which relies heavily on demographic dividends and domestic consumption.

Shumita Sharma Deveshwar, chief India economist at GlobalData TS Lombard, noted, “Without job creation, India’s consumption-led economy will struggle to grow, limiting investment demand at a time when the export growth-led model is at risk globally.” She added that the AI boom poses a threat to jobs in both manufacturing and services, exacerbating existing challenges in shifting labor from agriculture to industry.

India’s IT minister, Ashwini Vaishnaw, acknowledged the disruption to jobs in the tech sector as a “real challenge” earlier this year, emphasizing the need for workforce upskilling and reskilling. The government anticipates AI will fundamentally reshape the country’s IT sector.

Alexandra Hermann Prasad, lead economist at Oxford Economics, cautioned that while not all jobs are at risk, a significant portion of the workforce lacks the skills needed to transition into roles that complement AI. She attributed this to “weak overall education outcomes.”

The impact is already visible. Cognizant recently launched ‘Project Leap,’ an AI transformation program that includes workforce reskilling and, crucially, job cuts. Reports indicate up to 4,000 positions could be eliminated as part of this initiative.

Sushovon Nayak, senior research analyst at Anand Rathi Institutional Equities, observed a trend of “headcount rationalisation” across the industry, with net hiring by India’s top five IT companies declining by approximately 7,000 in the financial year ending March 2026.

Tata Consultancy Services (TCS), India’s largest IT firm, reportedly plans to hire only 25,000 fresh graduates this year, a significant decrease from an average of 40,000 modern hires over the past three years. Gross hiring across IT firms averaged around 230,000 for the last five years, but fell to approximately 170,000 in the financial year ending March 2026.

Kapil Joshi, chief executive of IT staffing at Quess Corp, highlighted a shift towards productivity-led growth rather than large-scale hiring. “Headcount growth has flattened, even as revenues remain stable,” he said. Traditional IT roles are evolving to incorporate AI capabilities, requiring expertise in large language models, while entry-level vacancies are becoming less common.

Experts express limited optimism about the ability of other sectors to absorb the displaced workforce. Richard Rossow, senior adviser and chair on India and emerging Asia economics at CSIS, noted that despite a decade of “Make in India,” a manufacturing renaissance has yet to materialize. Like Bernstein, Rossow agrees that manufacturing remains a relatively small part of the economy, with agriculture still being the largest source of employment.

The growing gig economy, characterized by low-value employment, is unlikely to compensate for the loss of quality jobs in services or manufacturing. Without creating new, high-quality employment opportunities – or rapidly reskilling the workforce – India risks a more precarious growth trajectory, where strong GDP figures mask rising unemployment.

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Q: What is driving the job losses in the Indian IT sector?

A: The adoption of artificial intelligence (AI) is automating tasks previously performed by human workers, leading to a reduced need for large-scale hiring in the IT sector.

Q: Is the Indian government taking steps to address this issue?

A: Yes, the government is focusing on upskilling and reskilling the workforce to prepare them for new roles in the AI-driven economy.

Q: What sectors might offer alternative employment opportunities?

A: Experts suggest that manufacturing could be a potential area for job creation, but a significant shift in this sector has yet to occur.