Factories to the fore: India must reboot its growth model before the AI-pocalypse hits its IT sector

As the dust settles on India’s recent AI summit—optimistic in tone, ambitious in scope—a harder question demands an honest answer. What does the next wave of artificial intelligence mean for a sector that has served as a key economic engine for three decades? Information technology (IT) services generate over $254 billion in annual exports, employ 5.4 million professionals and finance a merchandise trade deficit that has breached $300 billion. Software exports are a success story.

They are also a macroeconomic stabilizer, rupee backstop and social contract (given their role in expanding India’s middle class). This engine is under threat as Agentic AI systems deployed at scale by Anthropic, OpenAI, Google and Microsoft can autonomously write code, manage workflows, process claims and run structured business processes. Much of India’s IT sector’s services fall in this category.

Niti Aayog warns that our tech-sector headcount could fall from 7.5 million to 6 million by 2031. The stock market has voted: India’s IT majors have seen their share prices fall while their global counterparts surged. A sharp slowdown in IT exports can precipitate a collapse of the rupee, forcing up interest rates and pushing the Centre to cut expenditure, which would put further pressure on growth and jobs.

If there’s a silver lining, it is the possibility of a broad manufacturing renaissance. India accounts for just 2.9% of global factory output and 1.8% of goods exports—a share that has barely moved in two decades. Manufacturing contributes just 13% of GDP, against 25-32% in East Asian countries that exhibited miracle growth.