AI threatens to upend India's ITeS industry's human capital requirements

It has long been argued that technological change will render how India’s information technology-enabled services (ITeS) sector has traditionally operated obsolete. This process is now clearly underway, with major implications for not just this sector but also India’s broader services exports and the job market. As this newspaper has reported, deals in the artificial intelligence space have vastly increased in recent years. While the information technology (IT) space itself is growing at around 5 per cent, deal-making with an artificial intelligence (AI) focus is increasing at 30 per cent. Some major buyers, including Big Four accounting firms, are driving this increase. Budgets set aside by investors in the space are similar, with three quarters of a billion dollars deployed in the generative AI space in the past couple of years in India alone. 

This newspaper has also outlined in its reportage how ITeS companies are responding to this shift in the composition of demand among their major clients. AI-related contracts are fundamentally different from the services that they have traditionally provided. The latter usually were coding-intensive or required constant attention to client support by employees with less experience and relatively untutored skills. Developing and maintaining AI systems requires different human capital, focusing on those with a decade or so of experience. In addition, the use of AI within these organisations has increased productivity and reduced the requirement for raw labour when it comes to coding. The ideal demographic profile of the big IT majors will thus skew the older — a “diamond” structure bulging with mid-career employees rather than a “pyramid” structure heavy on foot soldiers fresh out of training. The companies are themselves moving towards this ideal, assisted by a hiring boom they went through shortly after the pandemic five years ago. 

It is vital now for India’s ITeS behemoths to inform what this transformation implies for their future business models, their earning plans, and their hiring decisions. Their importance to the economy and the prosperity of India’s middle class cannot be understated. Thus, it is in the interest not just of their investors and clients but also of the broader economy that a clear pathway for transformation of their business models be communicated and understood. How do they intend to take on the higher-value tasks associated with the AI age? What will be their global differentiator, and how will they provide value addition when small and agile AI startups are promising to assist big clients all on their own? 

Most importantly, what is their plan for creating and retaining the human capital required for their new business models? While the median employee in their workforce may now have multiple years of experience, whether their skills have been updated sufficiently to meet the moment is quite a separate question. In India, companies have often been doubtful about investing in upskilling internally, given the level of churn in their workforce. But those instincts may have to be revisited for a high-value, high-margin, high-skills business model. Some of these concerns have been aired for some time, including by those in leadership positions in the industry. It is good to see that action is also being taken on aspects of the transformation. Overall strategies for this shift, however, need to be developed and communicated. Besides the IT business, IT education in the country will also need to evolve.