AI is exposing cracks in India’s growth story as it impacts high-paying IT jobs

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Over the past two decades, India’s IT sector has been driving consumption, which in many ways has driven India’s growth story. But as AI forces IT companies to move away from volume hiring, it highlights a key gap that risks hindering economic growth: a lack of quality jobs.

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Even as conflict in the Middle East disrupts global supply chains, IMF earlier this month Confirming its forecast, it said that India will remain the fastest growing major economy in 2026.

But last week, global equity research firm Bernstein wrote an open letter to Indian Prime Minister Narendra Modi, warning of a deepening employment crisis in the country, especially as artificial intelligence threatens quality jobs in the information technology sector.

Jobs with relatively high wages and productivity have spilled over into real estate, education and services, making white-collar employment a major pillar of the country’s economic growth.

Over the past two decades, the 10 million to 15 million Indians working in the IT services and business process outsourcing industry have formed the basis of “the aspirational middle class – buying houses, taking flights, increasing consumption,” Bernstein said. “General AI now challenges that template.”

Experts said India’s IT sector competed with global rivals because of the huge talent pool at relatively low costs that gave it an edge. But AI has tilted this equation away from labor arbitrage in favor of technological arbitrage first. The lack of quality jobs will put pressure on India’s growth story, which depends on the demographic dividend and domestic consumption.

“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 under threat globally,” Shumita Sharma Deveshwar, chief India economist at GlobalData TS Lombard, told CNBC.

“India has struggled to increase the share of manufacturing in the economy by shifting labor from farms to factories,” he said, adding that the AI ​​boom now poses a threat to jobs in both manufacturing and services.

According to Bernstein, about 45% of India’s workforce is dependent on agriculture, which contributes only 15%-16% to its GDP.

In an interview with CNBC-TV18 during the AI ​​Summit earlier this year, India’s IT Minister Ashwini Vaishnaw acknowledged that disruption of jobs in the tech sector is a big problem. “The real challenge,” But stressed that the solution lies in “upgrading and reskilling the workforce”. The Indian government hopes that AI will reshape the country’s IT sector.

“Not all jobs are at risk of being replaced by AI, but the key issue is that most of the workforce lacks the skills to move into complementary roles that could benefit from AI,” said Alexandra Harman Prasad, chief economist at Oxford Economics. “Weak overall education outcomes” play a significant contributing role, he said.

But even as AI-driven reskilling is gaining momentum with unclear prospects, jobs in the IT sector are already declining.

IT firm knowledgeable Said on Wednesday that it has launched ‘Project Leap’, a new program for AI transformation, which not only includes Re-skilling of workforce but also job cuts. A report by Indian newspaper Mint said that 4,000 people could be laid off as part of the AI ​​push.

“Headcount is being rationalized across the board,” said Sushovan Nayak, senior research analyst at Mumbai-based Anand Rathi Institutional Equities. He said net hiring by India’s top five IT companies declined by about 7,000 in the financial year ending March 2026.

According to local media reports, India’s largest IT firm, Tata Consultancy Serviceswhich laid off 12,000 people last July, has plans To make only 25,000 new appointments There were 40,000 new hires graduating this year, compared to an average of 40,000 in the last three years.

According to Nayak, over the last five years, gross hiring by IT companies averaged around 230,000, but in the fiscal year ending March 2026, they added around 170,000 jobs.

Others in the industry are also seeing a clear shift in India’s IT industry, moving away from volume hiring.

Experts said that before AI, India’s relatively low-cost talent was the key to growth in IT companies, but now these companies are focusing on increasing productivity.

“FY26 saw a structural reset where companies focused on productivity-led growth rather than large-scale hiring,” Kapil Joshi, chief executive of IT staffing at Quess Corp., told CNBC. “Growth in the number of employees has slowed down, while revenues have remained stagnant,” he said.

According to data shared by staffing firms, traditional IT roles are being significantly expanded to include AI capabilities, which require exposure to larger language models, while IT companies are posting fewer entry-level vacancies.

Since job creation in the IT industry has slowed down, experts are not very hopeful that India can create quality jobs in other sectors to fill the gap.

“More than ten years of ‘Make in India’ has yet to trigger a manufacturing renaissance,” Richard Rossow, senior adviser and chair of India and Emerging Asia economics at policy think tank CSIS, told CNBC. Like Bernstein, Rossow agrees that manufacturing is still a “relatively small part of the economy”, while basic agriculture remains the largest source of employment.

Experts said India’s growing gig economy, which provides mostly low-value jobs, will not be able to compensate for quality jobs in services or manufacturing.

Without creating new pools of quality jobs – or rapidly re-skilling its workforce – India risks facing a more fragile version of its growth story, where strong headline GDP hides rising unemployment.

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