Artificial intelligence is reshaping the global technology industry, forcing India’s IT services sector to rethink its traditional business model. For decades, Indian tech companies grew by deploying large numbers of skilled engineers and billing clients based on the hours worked. However, AI tools are now dramatically increasing productivity, allowing the same work to be completed with fewer human hours. This shift threatens the effort-based pricing model that has long powered India’s IT exports.
India’s technology sector has become a major pillar of the national economy, generating about $224 billion in annual exports, contributing roughly 7% of the country’s GDP, and employing nearly 6 million people. But AI is disrupting the traditional link between the amount of work required and the number of engineers employed. As companies adopt AI copilots and automation tools, they are able to deliver projects faster, which raises questions about how IT services firms will maintain revenue growth.
The article argues that the biggest economic gains in the AI era are flowing to companies that control key technological layers, such as advanced semiconductor chips, large-scale computing infrastructure, and foundational AI models. These areas are currently dominated by major technology firms in the United States, with China also investing heavily in building similar capabilities. Meanwhile, services firms—including many Indian IT companies—remain essential for implementing and customizing AI solutions but capture a smaller share of the value created by the technology.
To remain competitive, Indian tech companies must shift from selling labour hours to delivering outcome-based solutions powered by AI. This includes reskilling workers in areas like AI integration, data engineering, and cybersecurity, while investing in proprietary AI platforms and intellectual property. By building their own AI capabilities and infrastructure, Indian firms can move up the value chain and ensure they capture a larger share of the economic benefits generated by artificial intelligence.
