AI Threat Looms Over India’s IT Jobs Boom

From the Editor’s Desk

February 28, 2026

Over the last two and a half decades, India built a huge industry by doing office and technology work for companies in the United States and Europe. Now new artificial intelligence (AI) tools are starting to perform some of that work, and this shift could affect millions of jobs in India, according to a report published in The New York Times.

Companies in richer countries sent work such as software coding, customer support, accounting and data processing to India because hiring skilled workers there cost far less. Two advantages powered this massive service export industry. India had a large pool of educated English-speaking graduates, and their salaries were far lower than those of similar workers in the West.

The technology and outsourcing sector today employs more than 6 million (60 lakh) people and produces close to 300 billion (30,000 crore) dollars (roughly 27 lakh crore Indian rupees) in output, according to the NYT report. That equals over 7 percent of India’s total economy. Entire cities such as Bengaluru, Hyderabad and Pune expanded rapidly because of this boom. For many middle-class families, an entry-level job in an IT services firm became the standard path to financial stability.

The report argues that AI could weaken the economic logic behind this model. If a company in the United States can either hire a team of engineers in India or use an AI system to write code or process data, it will choose the cheaper and more reliable option.

Tata Consultancy Services, one of India’s largest private employers, has reduced its workforce from its recent peak. Infosys has slowed hiring. Start-ups across the country cut jobs in 2025. In labour economics, hiring slowdowns often appear before major layoffs. Firms usually pause recruitment first while they test automation tools and reorganise workflows.

The stress is especially visible among new graduates. India produces a very large number of engineering and technical degree holders every year. For decades, outsourcing companies absorbed many of them through mass recruitment drives. The NYT report suggests that these openings are becoming harder to find. As a result, young job seekers are rushing to learn AI-related skills, a trend now widely seen as upskilling.

This means workers and technology are moving against each other at the same time. As AI takes over routine tasks, people try to shift into roles that require more judgment, creativity or specialised skills. The difficulty is that this shift takes time and resources. Training large numbers of workers cannot happen quickly, and the number of advanced AI jobs remains limited compared with the huge number of new graduates entering the market each year.

There is also a deeper structural concern. India’s strength historically came from abundant skilled labour. Advanced AI development depends heavily on powerful data centres, specialised microchips, stable electricity supply and large capital investment. The report points out that India still relies heavily on the United States for many of these core inputs, including foundational AI models and advanced chips. This dependence may limit how quickly India can move from being a service provider to becoming a creator of cutting edge AI products.

At the same time, the situation is far from settled. Industry leaders quoted in the report say large outsourcing firms still have strong advantages. They run complex software systems for global clients, hold long-term contracts and know how to manage large technology operations.

These strengths create what economists call switching costs. In simple terms, it is expensive and risky for big companies to suddenly change the systems or vendors they rely on. Replacing everything at once can disrupt business operations. Because of this, clients tend to move slowly, which gives Indian outsourcing firms some time to adjust to the rise of AI.

Another countertrend comes from global capability centres. Many multinational companies have opened their own technology hubs inside India rather than outsourcing all work. This shows that global demand for skilled Indian engineers remains strong. It also suggests that India continues to play a significant role in the global technology workforce, even as the nature of the work evolves.

The most worrying development in the report appears at the lower end of the job market. AI creates many low-paid, repetitive support roles such as data labelling. At the same time, it increases demand for a smaller number of highly skilled AI design and engineering roles. The middle layer of routine white collar jobs begins to thin out. Economists call this labour market polarisation because employment growth becomes uneven across the skill ladder. Jobs expand at the high-skill end and at the low-wage end, while mid-level roles lose ground.

One might say that six million technology workers form a small share of India’s total population, but their economic influence is far larger because they are heavily concentrated in major cities such as Bengaluru, Hyderabad and Pune and are closely tied to the country’s growth narrative.

Most employees in this sector earn middle class salaries and spend heavily on housing, transport, education and services. Their income supports a wide network of urban businesses. Because of this, any sustained slowdown in the technology sector can spread through city economies.

Housing markets in tech-driven cities can weaken if hiring slows or salaries stagnate. Consumer spending in areas such as retail, food delivery and private education can soften because technology workers make up a large share of customers. Urban employment patterns can also shift, since many service jobs exist partly to support the technology workforce.

In the coming years, the key question will be how quickly India can move up the technological ladder. If companies in the country successfully build advanced AI capabilities and develop higher value services, the industry may transform rather than decline. If automation spreads faster than new opportunities emerge, India’s outsourcing engine could face sustained pressure.

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