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

LivestreamMenuMake ItselectUSAINTLLivestreamSearch quotes, news & videosLivestreamWatchlistSIGN INCreate free accountMarketsBusinessInvestingTechPoliticsVideoWatchlistInvesting ClubPROLivestreamMenu Monday - Friday, 11:00 - 12:00 SIN/HK | 0500 - 06:00 CET This report is from this week's "Inside India" newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse — Subscribe today Hello, this is Priyanka Salve, writing to you from Singapore. Welcome to the latest edition of "Inside India" — your one-stop destination for stories and developments from the world's fastest growing large economy. Over the past two decades, India's IT sector has been driving a consumption boom that has in many ways anchored the India growth story. But as AI forces IT companies to shift away from volume hiring, it exposes a critical gap that risks hampering economic growth: a lack of quality jobs. Any thoughts on today's newsletter? Share them with the team. Few global events have dented India's fabled growth story. Even as the conflict in the Middle East disrupts global supply chains, the IMF earlier this month reaffirmed its forecast that India will remain the fastest-growing large 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. Those jobs with relatively high wages and productivity have had spillover effects across real estate, education, and services, making white-collar employment a key pillar of the country's economic growth. For the past two decades, 10 million to 15 million Indians working in IT services and the business process outsourcing industry have anchored the "aspirational middle class—buying homes, taking flights, driving consumption," Bernstein said. "Gen AI now challenges that template." India's IT sector used to outcompete global peers as the vast talent pool at relatively low cost gave it an edge, experts said. But AI has tilted this equation in favor of tech arbitrage, from labor arbitrage earlier. The lack of quality jobs will stress-test the India growth story, which relies 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 at risk globally," Shumita Sharma Deveshwar, chief India economist at GlobalData TS Lombard, told CNBC. "India has struggled to raise the share of manufacturing in the economy to shift labour from farm to factories," she said, adding that the AI boom now poses a threat to jobs in both manufacturing and services. Close to 45% of India's workforce continues to depend on agriculture, which only contributes 15%–16% of its GDP, according to Bernstein. In an interview with CNBC-TV18 during the AI Summit earlier this year, Ashwini Vaishnaw, India's IT minister, acknowledged that disruption to jobs in the tech sector was a "real challenge," but stressed that the solution was in "upskilling and reskilling 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, lead economist at Oxford Economics, but added that the major issue was much of the workforce lacked the skills to shift into complementary roles that benefit from AI. The "weak overall education outcomes" play a key contributing role, she added. But even as AI-driven reskilling accelerates with unclear prospects, jobs in the IT sector are already declining. IT firm Cognizant on Wednesday said it had rolled out 'Project Leap', a new program for AI transformation that involves not only workforce reskilling but also job cuts. A report by Indian newspaper Mint said that up to 4,000 people could be laid off as part of that AI push. "Headcount rationalisation is happening across the board," said Sushovon Nayak, senior research analyst, at Mumbai-based Anand Rathi Institutional Equities, adding that net hiring by India's top five IT companies dropped by around 7,000 in the financial year ended March 2026. According to local media reports, India's largest IT firm, Tata Consultancy Services, which laid off 12,000 last July, has plans to hire just 25,000 fresh graduates this year compared to an average of 40,000 new hires over the last three years. For the last five years, gross hiring of IT firms averaged around 230,000, but in the financial year ending in March 2026, they added around 170,000, according to Nayak. Others in the industry also see a clear shift in India's IT industry, which is moving away from volume hires. Before AI, India's relatively low-cost talent was a key to driving growth in IT companies, but now these firms are focusing on increasing productivity, experts said. "FY26

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

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

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