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

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

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While conflict in the Middle East disrupts global supply chains, IMF earlier this month He reiterated his prediction 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 that the employment crisis in the country is deepening, especially as artificial intelligence threatens quality jobs in the information technology sector.

These jobs, with their relatively high wages and productivity, had spillover effects on real estate, education, and services, making white-collar employment the mainstay of the country’s economic growth.

Bernstein said that over the last two decades, the 10 to 15 million Indians working in the IT services and business process outsourcing sector are anchored in the “middle class willing to buy a house, fly on a plane, increase consumption.” “Gen AI is now challenging this template.”

Experts said India’s IT sector has outperformed its global rivals as its large talent pool at relatively low cost gives it an advantage. But artificial intelligence has turned this equation away from the previous labor arbitrage in favor of technology arbitrage. Lack of quality jobs will stress test India’s growth story, which relies on demographic dividend and domestic consumption.

“Unless jobs are created, India’s consumption-led economy will struggle to grow, limiting investment demand at a time when the export-led growth model is at risk 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 to shift labor from farms to factories,” he said, adding that the AI ​​boom now poses a threat to jobs in both manufacturing and service sectors.

According to Bernstein, close to 45% of India’s workforce remains dependent on agriculture, which accounts for only 15% to 16% of GDP.

In an interview with CNBC-TV18 during the Artificial Intelligence Summit earlier this year, India’s IT minister Ashwini Vaishnaw acknowledged that employment disruption in the tech sector is a problem. “a real challenge” but he emphasized that the solution is to “skill and reskill the workforce.” The Indian government expects AI to reinvent the country’s IT sector.

“Not all jobs are at risk of being replaced by AI,” said Alexandra Hermann Prasad, chief economist at Oxford Economics, but added that the real problem is that much of the workforce lacks the skills to move into complementary roles that leverage AI. He added that “generally poor educational outcomes” played a significant contributing role.

But jobs in the IT sector are already declining even as AI-powered reskilling accelerates with uncertain prospects.

IT firm knowing It has launched ‘Project Leap’, a new program for AI transformation, it said on Wednesday. reskilling of the workforce but also layoffs. A report by Indian newspaper Mint said up to 4,000 jobs could be cut as part of the AI ​​push.

“Headcount rationalization is happening across the board,” said Sushovon Nayak, senior research analyst at Mumbai-based Anand Rathi Institutional Equities, adding that net hiring of India’s five largest IT companies fell by around 7,000 in the financial year ending March 2026.

According to local media reports, India’s largest IT company, Tata Consultancy ServicesThe company, which laid off 12,000 people last July, has plans hiring only 25,000 new people The number of graduates this year has averaged 40,000 new hires over the past three years.

According to Nayak, the gross hiring of IT firms in the last five years averaged around 230,000, but in the financial year ending March 2026, the figure increased by around 170,000.

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

Before AI, India’s relatively low-cost talent was key to boosting growth in IT companies, but now these firms are focusing on improving productivity, experts said.

“FY26 witnessed a structural reset where companies focused on productivity-driven growth rather than large-scale hiring,” Kapil Joshi, managing director of IT staff at Quess Corp, told CNBC. “Even though revenues have remained constant, headcount growth has remained constant,” he said.

While traditional IT roles are significantly expanding to include AI talent that requires exposure to large language models, IT companies are advertising fewer entry-level vacancies, according to data shared by staffing firm.

While job creation in the IT sector is slowing down, experts are not hopeful that India will be able to create quality jobs in other sectors to fill the gap.

“More than a decade of ‘Make in India’ has yet to trigger a manufacturing renaissance,” Richard Rossow, senior advisor and president of India and emerging Asian economies at policy think tank CSIS, told CNBC. Like Bernstein, Rossow acknowledges that manufacturing is still “a relatively small part of the economy,” but that primary agriculture remains the largest source of employment.

India’s growing economy, which offers mostly low-value employment, cannot compensate for quality jobs in the service or manufacturing sectors, experts said.

Without creating new quality job pools or rapid reskilling of the workforce, India risks facing a more fragile version of its growth story, one in which strong headline GDP masks rising unemployment.

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