Can India’s IT Sector Survive the AI Reset?

For three decades, Indian IT rode every wave it caught—Y2K, cloud, digital transformation. But AI? AI is different. AI doesn’t reward scale, it punishes it. It doesn’t just automate tasks— it rewrites the entire playbook. And Indian IT, with 5mn engineers and $250bn in revenue, finds itself at a crossroads—a legacy at scale, but one staring down the barrel of FOBO or Fear of Becoming Obsolete.

The Game Has Changed. Has Indian IT?

Adding 10,000 engineers meant another $500mn in revenue in the cloud era. Predictable. Profitable. But today, a single AI engineer armed with GitHub Copilot, ChatGPT plugins and a model like Claude can outpace teams of 50. Software development no longer scales with headcount. The rules have changed. And Indian IT is still trying to win with last season’s playbook. Gone are the days when clients paid for effort. Today, they pay for impact. Hours billed? Irrelevant.

What matters now is business outcomes—faster fraud detection, leaner inventory or a 10% uplift in NPS. When SAP’s S/4HANA with embedded AI or Salesforce’s Einstein can deliver all that out of the box, who needs an army of developers? As Marc Andreessen put it, software is eating the world. But in 2025, AI is eating software. And Indian IT risks becoming the buffet.

From Capability Stack to Capability Shift

If the challenge sounds existential, that’s because it is. But the solution isn’t to panic—it’s to pivot. And the tools for this pivot already exist in the strategic canon.

Dynamic Capabilities: Adaptation as a Core Competence

The dynamic capabilities framework—sensing, seizing and reconfiguring—explains how firms thrive in volatile environments. Indian IT firms have sensed the disruption. TCS reports that 10% of its Q3 FY25 revenue comes from AI-linked projects—a number with no corresponding spike in hiring. Infosys has trained 2,50,000 employees in AI/ML [machine learning], while HCL has retrained 1,00,000+. But sensing and seizing are not enough. The real challenge is reconfiguring delivery models, org charts and culture. Are firms willing to kill the golden goose of billable hours? Will they restructure around product pods and platform thinking? That’s where real transformation lies.

Composition-Based View: From Cost to Context

Indian IT never won because it had proprietary assets. It won because it composed existing capabilities in novel ways—cost, compliance and client confidence. That’s the essence of the composition-based view (CBV): not what you own, but how you combine and contextualise. In the AI era, CBV 2.0 means stitching together open-source tools, hyperscaler APIs and domain- specific knowledge to create outcome-based enterprise solutions. Indian IT doesn’t need to build the next GPT-5, but it must own the enterprise last mile, where AI meets regulatory nuance, operational complexity and real business workflows.

Four Faultlines that Can’t be Ignored

The “Grey Swan” is here, and it lays out four tectonic shifts:

·       Labour to leverage: Why deploy 200 developers when 20 can use AI to deliver faster, smarter outcomes?

·       Speed over scale: Clients want value in weeks, not years. Legacy delivery cycles are obsolete.

·       Impact over input: Billing for hours worked is dead. Clients now pay for business results—faster inventory turns, better fraud detection, optimised workflows.

·       Coders to curators: Indian IT must pivot from building software to orchestrating AI systems—training, tuning and interpreting them for enterprise needs.

These aren’t hypotheticals. TCS already gets 10% of its Q3 FY25 revenue from AI with no proportional hiring spike. The decoupling of effort from earnings is real and irreversible.

Too Big to Fail, But Not Too Big to Fall

Let’s not romanticise. Indian IT is not a start-up—it’s a social safety net. With 10–12mn indirect jobs linked to it, the cost of complacency is catastrophic. But scale is no excuse for stasis. The dynamic capabilities are there. The compositional mindset is part of our DNA. What’s needed is urgency—and the courage to cannibalise yesterday’s models to build tomorrow’s businesses.

Indian IT cracked Y2K. It conquered the cloud. But FOBO isn’t a fear. It’s a fact. The only way out is through: productise aggressively, price for impact and retrain the workforce before the wave crashes. The next 3–5 years will decide whether Indian IT remains a global powerhouse or becomes another case study in creative destruction.

Kiran Mahasuar is assistant professor in the strategy, innovation, and entrepreneurship area at IMT Ghaziabad