Indian IT Sector Shows Resilience Amid AI Disruption, But Entry-Level Jobs Face Headwinds

The Indian IT services sector, long considered vulnerable to automation, is showing unexpected resilience to artificial intelligence disruption according to a comprehensive new study from the Council for Research on International Economic Relations (ICRIER). The think tank's research, titled "AI and Jobs: This Time Is No Different," suggests that while AI is transforming the employment landscape, the feared "AIpocalypse" may be overstated for India's technology workforce.

The study surveyed 651 IT firms and conducted interviews with industry leaders to assess AI's impact on hiring patterns and workforce composition. The findings paint a nuanced picture of technological disruption that both validates and challenges conventional wisdom about automation's effects on employment.

AI as Complement Rather Than Substitute

Perhaps the most striking finding is that demand for roles most exposed to AI—software analysts, developers, and mathematicians—remains strong. This hiring pattern suggests AI is functioning primarily as a complement to high-skill technical work rather than as a direct substitute, at least in the current phase of adoption.

"The strongest demand from employers is for roles like software analysts and developers, or mathematicians, that are most exposed to AI," the study notes. This counterintuitive trend indicates that AI expertise has become a valuable skill multiplier rather than a job eliminator for experienced professionals.

Productivity Gains Offset Job Losses

The research found that a majority of firms reported "significant productivity gains following AI adoption, reflected in higher and better-quality output, as well as time and cost savings." These efficiency improvements appear to be creating new opportunities even as they transform existing roles.

However, the employment outlook varies significantly by experience level. While 27 percent of firms expect headcount to shrink due to AI adoption and 28 percent anticipate hiring more workers, the most concerning statistic is that more than half of respondents expect to slow hiring for entry-level staff.

Entry-Level Jobs Most at Risk

The moderation of early career hiring represents a significant shift in the Indian IT sector's traditional role as a massive employer of fresh graduates. The study observes a "general moderation" of early career hiring that could have long-term implications for India's workforce development.

This trend aligns with broader concerns about the future of entry-level positions in an AI-enhanced workplace. As routine coding tasks and basic analysis become automated, the traditional apprenticeship model of tech employment may need fundamental restructuring.

Optimism for Medium to Long-Term Growth

Despite near-term challenges, ICRIER remains optimistic about India's job prospects in the AI era. The think tank points to India's position as home to "one of the world's largest pools of AI-skilled workers" and anticipates that global demand for AI-enabled products will expand rapidly.

"As home to one of the world's largest pools of AI-skilled workers, and with global demand for AI-enabled products set to expand rapidly, Indian workers are likely to see large and sustained increase in demand for their services in the medium to long-run," the study concludes.

The Startup Factor

The research suggests that many of the most impactful technology-driven jobs will be created by startups that have yet to be established. This mirrors historical patterns where new technologies spawned entirely new categories of employment that were difficult to predict in advance.

"While some incumbent firms are likely to survive and thrive in the AI age, it is new, AI-centric firms that are most likely to disrupt incumbents and generate a large share of future employment," the study states.

Urgent Need for Policy and Training Reforms

Despite the overall optimistic outlook, ICRIER warns that India's government should not assume the nation's tech sector will automatically navigate the AI transition successfully. The study identifies several critical gaps that require immediate attention:

Skills Gap in Advanced AI Technologies: Indian IT firms are "not hiring enough workers with skills in large language model operations," indicating a shortage of expertise in cutting-edge AI applications.

Insufficient R&D Investment: Companies are not expanding their research and development divisions at a pace necessary to remain competitive in an AI-driven global market.

Training and Upskilling Deficiencies: Perhaps most critically, firms are "not investing adequately in training and upskilling" their existing workforce to adapt to AI-driven changes.

Quality of New Entrants: There is a "shortage of qualified AI trainers" and "limited AI skills among new labour market entrants," suggesting that India's educational pipeline is not keeping pace with industry needs.

Regulatory Uncertainty: Policy and regulatory uncertainty surrounding AI adoption is creating additional challenges for firms trying to plan long-term investments in AI capabilities.

Implications for India's Tech Ecosystem

The study's findings have significant implications for India's position as a global technology hub. While the sector shows resilience, the shift away from entry-level hiring could disrupt the traditional model that has employed millions of young graduates.

For multinational corporations that have relied on Indian outsourcing for cost-effective development work, the study suggests a gradual evolution rather than sudden disruption. The continued demand for high-skill technical roles indicates that India's value proposition as a technology talent pool remains strong, albeit evolving.

Looking Ahead

The ICRIER study provides a roadmap for stakeholders navigating the AI transition. For policymakers, it underscores the need for education reform, skills training programs, and clear regulatory frameworks. For businesses, it highlights the importance of investing in workforce development and R&D capabilities.

For workers, particularly those early in their careers, the message is clear: adaptability and continuous learning are essential. The traditional entry points into tech careers may be changing, but opportunities remain for those who can develop AI-relevant skills.

The study ultimately suggests that while AI will transform India's IT sector, it is unlikely to eliminate it. Instead, the sector appears poised for evolution—maintaining its global competitiveness while adapting to new technological realities. The challenge now is ensuring that this transition benefits the broadest possible segment of India's massive and growing workforce.

As the study aptly concludes, there may still be more "My job was outsourced to India" jokes than "My job was outsourced to AI" lamentations—but only if India acts decisively to address the skills and policy challenges identified in this comprehensive analysis.