Evolving IT in the AI era

Ahead of the India-AI Impact Summit 2026, the Union Minister of electronics and IT Ashwini Vaishnaw said India’s IT sector is rapidly moving from traditional software development to artificial intelligence-driven solutions. That’s significant. With nearly 58 lakh workers and the rise of cities like Bengaluru, Hyderabad, and Gurugram as key IT service hubs, the $264 billion Indian IT industry has long been the technological backbone of the world, helping businesses succeed in the US, Europe, and elsewhere. The key drivers of the Indian IT industry’s success were cost-effectiveness, scalability, and availability of expertise.

The emergence of the age of AI and large language models (LLMs) is a “once-in-a-generation” phenomenon. AI is poised to revolutionise practically every bit of our lifestyles, and the IT world is no exception. “Data-friendly,” “intelligent,” and “automated” workflows are replacing the “people-and-process”-driven world of the traditional outsourcing paradigm. Consequently, a new wave of AI-first challengers is emerging; these agile competitors offer fresher takes on old services with “smarter,” “quicker”, and “more adaptive” solutions.

However, it seemed to be approaching. A Brookings article published in April 2019 titled “How India can prepare its workforce for the artificial intelligence era” perceived that “India will face unique impacts of automation relative to other countries.” American investment bank Jefferies reported in its January report that “one area of AI vulnerability in India is the IT services sector, where revenue growth of listed IT companies slowed to 4% in FY25 and 1.6% in the second quarter of FY26.” The impact is already evident.

Nonetheless, are there any existential threats to the Indian IT sector itself? Radical changes are underway towards various operations. Consequently, information is processed and value is produced with the emergence of technologies like LLMs and the transformer architecture. Automation-driven intelligence is replacing the delivery model that was dependent on human intelligence itself. The need for a large human resource pool is being reduced by cloud-based and open-source AI models that operate with reduced costs and barriers to delivery. AI redefines existing IT services rather than merely enhancing the services. Far from dying out, the industry is undergoing a metamorphosis.

Traditional IT was built around functional modules coded and maintained over decades, across multiple languages, and deeply embedded within their businesses. Last year, the ex-OpenAI/Tesla leader Andrej Karpathy coined the term “vibe coding,” which reflects the AI ability to write code through natural language inputs. For AI-generated codes, “human-in-the-loop” is, however, required for the purpose of validation, user-acceptance testing, verification, and deployment. In the near future, AI may write, test, document, and even run codes. However, since it’s unlikely that the AI would completely supplant the need for programmers, for the time being at least, by including AI in the workflow, the programmers can begin to empower themselves.

Most Indian IT firms are still stuck in legacy economics, notwithstanding their financial prowess. In the AI era, time and material (T&M), which correlates revenues with billable hours worked, inherently creates misalignment. In the face of new technologies, a stellar business with good operational skills can still experience failures, as explained by the Innovator’s Dilemma. This opens up opportunities to rise with speedier, leaner, and cost-effective businesses that are better suited to a new world of intelligence outsourcing.

Beyond AI’s ability to write code, tight budgets, rising labour rates, tariff issues, complexities in geopolitics, and those who have experienced the US visa process, the huge IT industry is no longer guaranteed to experience its typical growth curves. AI combined with humans may be the way of the future. But this shift would disrupt the traditional mass-hiring model in Indian IT, especially as it comes along with the post-pandemic correction of over-hiring and an inclement macroenvironment. Expectedly, with clients moving their spends to AI projects along with other factors, the IT services companies of India are racing against time to reinvent themselves for the AI age.

Yes, AI in IT decides the future. AI-powered technologies analyse large volumes of data and identify recurring patterns to enable specialised tasks. The term “AIOps” was coined by Gartner, defining the concept of managing information technology with the help of AI on a multilevel platform, allowing automation of data processing and decision-making with big data, analytics, and machine learning capabilities.

The prevailing models would face challenges from three forms of swift-moving AI-first competitors. AI-enabled services would be an example of a hybrid paradigm, which is a mix of AI automation and human-in-the-loop-based collaboration. AI technology services would create evaluation tools and data infrastructure that would be required to build new AI solutions. The third option could be pure software development. Given all this, there’s no doubt that outsourcing teams would function efficiently due to AI. Price compression might occur in the short term, but the market scope would improve due to a new surge in outsourcing and the emergence of AI services.

Also, one of the biggest concerns for IT companies is cybersecurity. AI and machine learning are the need of the hour to prevent cybercrimes because cyberattacks are on the rise every day.

IT organisations are gradually updating their playbooks to stay relevant in this AI-first world. Large AI initiatives, from significant personnel upskilling to new acquisitions, have been flagged by all major parties. By 2035, AI may account for 8-10% of India’s GDP, according to NITI Aayog. The baseline of 38,000 graphic processing units is a good starting point, and concurrently, the scale of data centres within India that house all the intelligent AI processing is also expanding. Benefits from AI will come from deployment, improved productivity, and efficiency. Indeed, adaptation will be the hallmark of the real leap.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.