How is AI reshaping India’s infotech sector? | Explained

The story so far: Recent announcements from Tata Consultancy Services (TCS) — a reported freeze on experienced hires, and the planned removal of 12,000 employees — have sent ripples of anxiety across the Indian tech sector. The Indian IT industry, which generates $280 billion in revenue and employs more than 5.8 million people, is at a crossroads.

Why is a shake-up happening?

While headlines often sensationalise these events as a direct consequence of AI (artificial intelligence) “culling jobs”, a far more complex scenario is playing out. “These developments are not isolated incidents but rather critical indicators of AI-catalysed transformation sweeping through software development and IT services, demanding a holistic re-evaluation of business models, talent strategies, and the very nature of work,” says Avinash Vashistha, former MD, Accenture India, and currently Chairman & CEO, Tholons, a New York-based technology, innovation and investment firm. At the heart of this transformation is AI’s capacity to drive unprecedented efficiencies across the entire software development lifecycle.

Why is AI gaining momentum now?

In a climate where most deal wins are being led by cost-optimisation initiatives, demonstrating efficiency is paramount for investor confidence, and AI-led productivity is helping companies do that, Mr. Vashistha says. AI-powered coding assistants, code generation tools, and intelligent debuggers are already enabling over 30% productivity boosts. The impact extends powerfully into the critical, often resource-intensive domains of testing and maintenance. AI in software testing is a game-changer. AI-driven tools can minimise human error and enhance the overall accuracy of test results by leveraging data-driven insights.

How will it impact jobs?

AI is no longer a futuristic technology limited to labs and startups. It is becoming the very fabric of how work gets done in global enterprises. In 2025 alone, more than $1 trillion is expected to be spent globally on AI infrastructure, model training, and application development.

“From generative AI chatbots to intelligent automation in back-end systems, AI is now shaping everything — how customer service is delivered and how decisions are made in boardrooms. This shift has already started to impact hiring and organisational structures. In the U.S., the CEO of Wells Fargo remarked that ‘attrition is our best friend’, after the company reduced its workforce for 20 straight quarters,” points out V. Balakrishnan, Chairman, Exfinity Ventures, a venture capital firm, also former CFO at Infosys. AI, automation, and low-code platforms are creating environments where fewer people can do more and do it faster.

Does this mean more business for India?

Most large global firms grapple with legacy infrastructure, poor-quality data, and fragmented systems which are major barriers to rolling out intelligent solutions at scale. Also, with global AI regulations like the EU’s AI Act coming into force, companies will need to demonstrate responsible AI usage, privacy compliance, and algorithmic fairness. “This is where Indian IT can play a pivotal role. By helping global clients clean and organise data, modernise old systems, and build compliant AI solutions, Indian firms can reposition themselves as indispensable partners for the AI era. Rather than being disrupted by AI, they can become the very agents that help their clients adopt it effectively,” says Mr. Balakrishnan.

What’s the message TCS is sending?

Industry experts say TCS, with its vast workforce of 6,07,979 employees as of March 2025, is an industry bellwether. Its recent announcements are a strategic message to the stock market, to employees, and to global clients, Mr. Vashishta says. For the stock market, such moves signal a disciplined approach to cost optimisation and a proactive stance in adapting to a changing market. For clients, TCS’s actions communicate its commitment to delivering highly efficient, AI-catalysed solutions. To employees, the message is one of heightened expectations and the need for continuous skill transformation. For more than three decades, India’s IT services industry — spearheaded by TCS, Infosys, Wipro, and their peers — has been the bedrock of its global digital identity, earning India its place as the “back office of the world”. But that era is “sunsetting”, says Sharad Sharma, co-founder of the ISPIRT Foundation. A seminal shift, which Andrej Karpathy, former technology head of Tesla, calls Software 2.0 & 3.0, “will change things fundamentally and reduce the advantage of scale”. India’s tech future will not be built by coding armies billing hours for legacy systems. It will be built by lean, AI-native small firms solving complex problems in healthcare, defence, fintech, sustainability, education, and beyond. “Tech firms no longer need a large IT park to serve global clients. A team of 50 can out-innovate a team of 5,000,” Mr. Sharma says.

What does this mean for Indian techies?

AI is not likely to replace coders/system engineers who code in C++, which is used to build operating systems, gaming, graphics, and critical secure applications. Wherever human ingenuity, critical thinking, and imagination is needed, AI is yet to make a huge practical impact. B.S. Murthy, CEO, Leadership Capital, says, “AI will not immediately replace domain competencies like tech architects, dev ops, UI/UX, product management, robotics & embedded systems. Talent high on math and imagination will rule the roost in this decade.”

Developers should evolve into supervisors and collaborators who focus on strategic decisions, ethical considerations, domain-specific logic, security planning and creative problem-solving that AI cannot replicate, Mr. Murthy adds.

Mr. Vashishta notes that the “TCS situation, therefore, is not a harbinger of doom, but a potent call for every stakeholder in the Indian tech ecosystem to adapt, evolve, and thrive in the age of AI.”

Why is the tech sector is no longer just about scale?

The Indian tech sector remains a powerhouse, contributing significantly to India’s GDP and exports. It employs an army of people and is a global leader in IT services, driven by a large pool of skilled talent, government support for digitisation, and a vibrant startup ecosystem.

India continues to be a major hub for multinational corporations setting up GCCs for various business functions. However, the sector is no longer just about scale; it’s about specialised expertise and leveraging cutting-edge technologies. The current flux, while challenging, presents an unparalleled opportunity for the Indian IT sector to shed its “stuffy image,” embrace AI as a core competency, and solidify its position as a global leader in the new era of intelligent automation and digital innovation.

“As AI begins to transform global workflows, business priorities, and customer expectations, the foundational strengths of India’s IT sector—people, processes, and predictability — are being put to the test,” says Mr. Balakrishnan.

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