Shares of India's largest IT services companies plunged sharply on Tuesday after American AI firm Anthropic unveiled a new artificial intelligence tool capable of performing complex coding tasks, triggering fears that automation could erode the competitive advantage that built India's $250 billion technology industry.
Tata Consultancy Services (TCS) and Infosys, the sector's blue-chip giants, saw their stock prices drop as investors absorbed the implications of AI tools that can potentially automate the software development and maintenance work that employs 5.4 million Indians. The Indian Express reported the market turbulence reflected deeper anxieties about India's economic model in an AI-driven future.
Anthropic's tool, which can write, debug, and optimize code with minimal human supervision, represents a direct challenge to the labor arbitrage model that made Indian IT services globally dominant. For decades, companies in North America and Europe outsourced software development to India because skilled engineers in Bangalore, Hyderabad, and Pune cost a fraction of their Western counterparts. AI threatens to make geography irrelevant.
In India, as across the subcontinent, scale and diversity make simple narratives impossible—and fascinating. The IT industry employs millions not just in metro cities but across tier-2 and tier-3 towns, creating a massive middle class whose consumption drives India's economy. What happens when that engine sputters?
The concerns are not hypothetical. Major Indian IT firms have already begun reducing entry-level hiring as AI tools handle routine coding tasks. TCS and Infosys both reported declining headcounts in recent quarters, even as revenues grew—a troubling sign that productivity gains from automation are not translating to jobs. For young Indians graduating with computer science degrees from the country's thousands of engineering colleges, the traditional pathway to middle-class prosperity is narrowing.
Yet the story is not purely one of displacement. Indian IT leaders have emphasized their companies are investing heavily in AI capabilities themselves, aiming to move up the value chain from labor-intensive services to higher-margin AI consulting and implementation. Infosys has launched AI training programs for its workforce, while TCS has developed proprietary AI platforms for clients.
The question is whether this transition can happen fast enough, and at sufficient scale, to absorb the workforce. India produces over 1.5 million engineering graduates annually. The IT sector has been the primary employer for this talent pool. If AI reduces demand for junior developers—the entry point for most graduates—where do they go?
Some analysts argue India's demographic dividend could become a liability if the economy cannot create enough knowledge-economy jobs. Others point to opportunities: AI requires massive data labeling, training, and customization work that could employ millions if properly structured. India's English-speaking, tech-literate workforce remains competitive for these roles.
The government faces pressure to act. Industry bodies have called for accelerated AI education in universities, tax incentives for companies investing in AI R&D, and potentially labor market reforms to increase workforce flexibility. But in a federal democracy where education policy is largely state-controlled, coordinated national action is challenging.
For investors, Tuesday's stock decline reflected recognition that India's IT industry must fundamentally transform or risk becoming commoditized. The companies that thrived by offering lower-cost labor will need to prove they can compete on innovation, not just price.
The broader lesson extends beyond IT. India's economic strategy has relied on leveraging its young, educated workforce to capture service sector jobs from developed economies. AI challenges that model across industries—from customer service to financial analysis to legal research. The country that mastered the last wave of globalization must now navigate a technological disruption that could reshape comparative advantage itself.
In India, as across the subcontinent, scale and diversity make simple narratives impossible—and fascinating. But 5.4 million IT workers, and the millions more hoping to join them, need more than narratives. They need a strategy for staying relevant in an age when algorithms can code.
