How AI Impacts India’s IT Services Companies

Professionals and students in India need to learn advanced technical skills to benefit from AI says Ashok Kumar Nag

(Image: Courtesy Wikimedia Commons.)

TO LISTEN TO AN AUDIO VERSION CLICK ON BUTTON BELOW

November 15, 2025

By Ashok Kumar Nag*

The use of artificial intelligence (AI) tools is already leading to a reduction in jobs at information technology companies in India. In the third quarter ended September 2025, the head count at Tata Consulting Services (TCS) fell by 20,000, around 3 percent, due to both voluntary departures and layoffs. Apparently, some of the layoffs were due to the introduction of AI tools. AI is most likely to affect “certain mid and senior level people” who “are not able to find the right role based on their seniority. They are the ones that we will release with a lot of care,” a company executive said in a conference call with investors.

TCS is one of the largest private sector employers in India. Infosys, another Indian IT giant, reduced its head count by an estimated 20,000, seven percent, from fiscal year 2023 to fiscal year 2025.

Largely due to the impact of AI, technology and other companies in the West are laying off staff. Last month, in the United States, use of agents and other AI tools was the second “most cited factor” for 153,0000 job cuts announced by US companies, according to Challenger, Gray and Christmas, a job placement firm. In Europe, Switzerland based Nestle announced 16,000 job cuts over the next two years, out of which 12,000 are white-collar professional jobs.

Major companies in the US, Western Europe and the Middle East account for the bulk of the revenues of Indian IT companies. But now such customers are rapidly adopting a wide range of AI-based automation tools, from Microsoft, OpenAI, and other major US technology firms as well as Cursor and other startups, to replace many of the labor-based services provided by the Indian IT companies. The tasks being automated include customer support, data management, software development, and IT infrastructure management.

The technology disadvantage for major Indian IT companies has gotten wider, since, over the past five years, they reportedly invested only around two percent of their revenues on research and development. In contrast, in fiscal year 2025, Microsoft spent $33 billion, or 12 percent of its $282 billion revenue, on R and D. This is more than TCS’s total $30 billion revenues in fiscal year 2025.

In addition, in fiscal year 2025, Microsoft was on track to invest about $80 billion to build out AI-enabled datacenters to train AI models and deploy AI and cloud-based applications around the world. About half of this investment will be outside the US.

Unless Indian IT companies quickly and substantially raise their spending on AI research and development, their revenues and profitability, and hence their ability to maintain staffing levels, will be severely reduced. How are they going to secure the capital required to sharply raise their R and D budgets? Even if they can find the capital, the Indian IT companies are at least three years behind Microsoft and the other major US companies in the global race to build AI tools.

It appears that the India IT companies were hoping they will be able to continue to operate profitably mostly as body-shoppers, that is by offering technology talent for hire to the major foreign technology and other companies. But even that role is under threat from automation.

Due to automation, there is a drop in demand for technology talent, which means lower revenues for the Indian IT companies. Also, the demand is mostly for talent with advanced AI-related skills, including world-class PhDs in AI, machine learning, robotics, math, and statistics. It requires a leap of faith to accept the claim that Indian IT companies can provide such talent from India, While there are certainly exceptionally skilled graduates, especially from the Indian Institutes of Technology, they represent only a tiny fraction of the roughly 50,000 top quality engineering students graduating from India each year.

To build a supply of PhDs, needed to power the expansion of AI in India, the quality of even the top engineering and science colleges need to be vastly improved. Here, one has to reckon with the fact that not a single engineering college in India is among the 100-best in the World. The highest-ranking Indian college holds a position of 169 on the Global List of the 1000 best engineering schools, published by US News, 2025-2026. Only 50 Indian institutes secured a spot on the list, while China has nearly five times as many.

Apparently, reflecting their weaker economic prospects, the stocks of the major Indian IT services firms are down by a third or more from their recent highs.

(Image: courtesy Wikimedia Commons.)

As a general-purpose technology, (GPT), similar to the steam engine and electricity, AI is unique. Its potential ability to replace human labor, in a wide range of businesses and other tasks is reshaping the demand for human skills.

There is little clarity about the potential impact of AI on hiring, especially from research conducted by business-related groups. The World Economic Forum, for instance, forecasts that by 2030, use of AI tools will create an estimated 170 million new jobs and displace 92 million jobs, resulting in net growth of 78 million jobs around the world. This is according to the Future of Jobs Report, published earlier this year, based on the forum’s survey of “1000 leading global employers, collectively representing 14 million workers across 22 industry clusters and 55” countries.

However, such forecasts may not be credible since no company Chief Executive is going to publicly state that AI tools enable them to fire more staff than they hire. In fact, statements on hiring by major companies already cast doubts on the forum’s forecasts. For example, last month CNBC reported that JP Morgan’s managers have been told to avoid hiring people as the bank deploys AI across its businesses. In the third quarter of this year, while the company’s profit rose by 12 percent from a year earlier, the headcount rose by only one percent. The New York-based bank, with 318,000 employees worldwide, has a market value of nearly $850 billion.

Some historical insights, on the disruptive role of AI on the labor market, are offered by the case of the automobile. Karl Benz introduced the first practical gasoline-powered car in 1886. A decade later Henry Ford’s Quadricycle was still an experimental innovation. At the time, horse-drawn carriages and railroads continued as the main modes of transportation.

Ford’s introduction of the moving assembly line for producing automobiles, in 1913–14, drastically changed the economics of the business. Such mass production made automobiles affordable and rendered the horse-drawn transport industry obsolete. This led to widespread job losses in saddle and harness making, livery stable operations, and the hay, and feed trade.

By the 1920s, horse-drawn carriages had virtually disappeared from American cities. At the same time, the rising automobile industry created far more jobs than it displaced – such as assembly-line workers, machinists, welders, auto-repair mechanics, drivers, as well as those in crude oil gathering, refining and distribution. The change though took almost five decades.

The initial expansion of AI tools usage in India, while impacting many white collar jobs, may have less of an impact on labor-intensive jobs. For instance, though tractors and harvesters have been widely available in India for more than fifty years, much of India’s farm production relies on manual labor since farm sizes are small.

It is unclear if the impact of AI on jobs will be similar to that following the introduction of the automobile. Also unclear is which sectors will spark the next wave of job creation and “what kind of talent will matter in an A.I. age,” notes Carl Benedikt Frey, an economic historian, writing in The New York Times. Unlike old declining industrial towns like Pittsburgh and Detroit, Frey states, Boston repeatedly renewed itself by making “education the engine” and depending on young talent and innovation.

Policy makers in India will do well to similarly focus on improving science and technical education, from schools to advanced research and mid-career training institutions. Even if policy makers do not act, professionals in India, including technologists, need to update their skills. Quality courses on a wide range of AI and related courses are available online, many with video instructions and at a relatively low cost. Students in India should also make use of these resources to improve their skills and job prospects.

*Ashok Kumar Nag is a Mumbai based consultant in information management and data analysis. He spent over 25 years in the Statistics and Information Management department of the Reserve Bank of India, retiring as an adviser. Ashok earned his Ph.D. from the Indian Statistical Institute, Kolkata, India.

LISTEN TO PODCASTS OF SOME PAST GLOBAL INDIAN TIMES STORIES: CLICK ON THIS LINK.