AI could mean transformation, not destruction, for India's IT industry

The export of information technology (IT) and IT-enabled services (ITeS) stands as a defining triumph of modern Indian economic history. It is the principal domain where India has achieved global competitiveness at scale. The rapid advancement of artificial intelligence (AI) has generated a narrative of decline. There is fear that AI will hollow out the Indian IT/ITeS  sector. 

What has happened thus far in the data? In the September 2025 quarter, the gross inflow for “other business services” was $29.5 billion, a strong increase from $25 billion in the corresponding quarter a year earlier. For IT services, the gross inflow in the September 2025 quarter reached $50.4 billion, a strong increase from $44.7 billion a year  earlier . Okay, but let’s look into the future and wonder how things might change. 

Much of the current anxiety stems from demonstrations of engineers rapidly building complex systems using AI tools. There is a tendency to extrapolate these localised successes into a macroeconomic upheaval. A distinction must be drawn between technology demonstrations and functional enterprise systems. Large organisations operate with immense friction. Enterprise users do not like to disrupt working systems and established contracts. When J P Morgan deploys AI, perhaps it will send more work to Tata Consultancy Services. 

At a deeper level, the construction of a software system is a process of knowledge creation. We learn how a system works through the toil of building it. When an AI system generates the code, the requisite knowledge creation in the mind of the human author is bypassed. This creates technical debt and cognitive debt. Such systems become brittle. When they fail, the human operator lacks the mental model required to repair them. High volumes of effort are required to debug and modify these kinds of systems. The proliferation of an AI-generated code might actually generate a lot of maintenance and remediation work for Indian software engineers. 

Indian IT firms are not uniform entities. Specialised companies, such as Persistent or KPIT, have constructed moats based on deep domain knowledge and long-standing customer relationships. This embedded knowledge allows them to adapt AI technologies to specific verticals. A general-purpose AI cannot easily replicate the specialised workflows of the global automotive industry that a firm like KPIT understands. 

Consider the large incumbents like Infosys. These corporations are embedded deep in the operations of global enterprises. They manage the complex, unglamorous plumbing of the Fortune 500. A frontier AI company in California cannot easily dislodge this infrastructure. If anything, the market dynamics run in the opposite direction. Frontier AI firms require distribution. To achieve daily revenues from token sales, they need adoption at global enterprises, and the path to this could run through Indian IT giants, Indian ITeS operations, and Indian global capability centres (GCCs), which actually run the enterprise IT of the global giants. 

This industry has navigated numerous technological regime changes since the late 1980s. Through client-server architectures, the internet boom, and Cloud computing, the underlying constant has remained unchanged: The global economy has a thirst for skilled, inexpensive intellectual capability. The AI revolution does not alter this fundamental arbitrage. Yes, of course, a lot will have to change in India, but this is a clever community that has ridden many a transformation before. 

It is important to maintain perspective on the situation. Indian IT currently accounts for roughly 2 per cent of global IT market capitalisation. We must not overstate the size of the incumbent. In a turbulent global environment, there is ample headroom for expansion. 

There is a genuine technological revolution afoot. We should not get crushed into gloom, thinking there is no future for Indian IT/IT-enabled services/GCCs. We do need to think in rather new ways insofar as business strategy, the board, the top management, and the approach to finance are concerned. 

For boards, the historical business model was straightforward. It relied on linear headcount expansion and long-term, annuity-style cash flows. That equilibrium is broken. The Indian IT industry that emerges over the next decade will look structurally different. It is the job of the board to engage in thinking out strategy that induces a successful transition out of the present comfortable ways. 

The future is characterised by uncertainty. Firm leadership must vigorously explore a wide frontier of possibilities. Enterprise customers may demand small, private language models trained and operated by Indian vendors. Indian software firms may form joint ventures with AI laboratories to implement technologies for enterprise clients. Specialised firms might partner deeply within their domains to create proprietary products. We may see a division of labour where Indian firms build the AI generators and also operate the human-in-the-loop checking mechanisms. Perhaps this technological shock may catalyse a new breed of global product companies emerging from India. 

Coping with this uncertainty by developing a portfolio of bets and taking risk requires new kinds of corporate governance. The organisational DNA of traditional IT firms prioritises stability, process adherence, and reliability. The new environment requires innovation, experimentation, and an appetite for risk. Navigating this shift will require a cultural change in the board and in the senior management. 

From the point of view of investment and corporate finance, big changes are required. Historically, Indian IT firms have exhibited the financial characteristics of stable utilities. There was a bias toward distributing cash to shareholders rather than reinvesting it in research and development. This strategy of capital allocation must change. The financial system must transition from pricing these firms as low-risk utilities to valuing them as complex, adaptive, technology integrators. 

Management teams must alter how they communicate with capital markets. Boards must show their portfolio of technological bets to the financial system, outlining the risk of their AI investment and its potential return. 

The world will always want intellectual capability. The constraint on growth is not the capability of algorithms but the availability of human ingenuity. The task for India is to double down on producing, owning, and growing intellectual capital, in the emergence of a firm culture of knowledge and innovation.

The author is a researcher at the XKDR Forum