AI Impact on India's IT Sector: Disruption or Transformation?

For Prelims, remember the projected AI services revenues of $10 billion-$12 billion in FY26. A common trap is confusing this with the overall IT sector revenue or a different year's projection. Examiners might also try to trick you by presenting this figure in INR instead of USD.

AI is shifting the IT industry from a labor arbitrage model (where cost savings came from cheaper labor) to an intelligence arbitrage model. This means companies are now leveraging AI to gain a competitive edge through superior insights, automation, and decision-making, rather than just lower labor costs.

AI could lead to job displacement, especially in entry-level positions within the BPO and KPO sectors. Automation can reduce the number of people needed for certain tasks, impacting roles like call center staff. There is also a risk of increased pressure on the workforce to constantly upskill and adapt to new technologies.

A 'just transition' refers to managing the shift caused by AI in the IT sector in a way that minimizes negative impacts on workers. This includes providing unemployment benefits, skill certification programs, and opportunities for reskilling. It's important for India to ensure that the benefits of AI are shared broadly and that workers are not left behind.

India's investment in education, research, compute capacity, and data infrastructure is insufficient compared to the U.S. and China. This matters because these areas are crucial for developing and deploying AI technologies, and a lack of investment could hinder India's ability to compete globally in the AI sector.

India needs to focus on: * Investing more in education and research to develop a skilled AI workforce. * Improving compute capacity and data infrastructure to support AI development. * Promoting digital skilling initiatives to help workers adapt to new roles. * Creating policies that encourage AI innovation while addressing potential risks.

• •Investing more in education and research to develop a skilled AI workforce.
• •Improving compute capacity and data infrastructure to support AI development.
• •Promoting digital skilling initiatives to help workers adapt to new roles.
• •Creating policies that encourage AI innovation while addressing potential risks.

AI can enable more accurate and efficient outcome-based pricing by providing better data analysis and prediction capabilities. This shift is significant because it aligns IT service costs more closely with the actual value delivered to clients, potentially leading to greater transparency and accountability.

AI automation can significantly reduce the number of staff required for certain tasks. For example, squad sizes may decrease from 8-10 members to 3-5, and call center staff could potentially be reduced from 4,000-5,000 to 10-15 due to AI. Remember these ranges for potential Prelims questions.

When critically examining the impact of AI, present both the positive and negative perspectives: * Positive: Increased efficiency, new job creation in AI-related fields, and enhanced competitiveness. * Negative: Potential job displacement, the need for continuous upskilling, and the risk of widening the digital divide. Also, discuss the need for policy interventions to mitigate the negative impacts and ensure a just transition.

• •Increased efficiency, new job creation in AI-related fields, and enhanced competitiveness.
• •Potential job displacement, the need for continuous upskilling, and the risk of widening the digital divide.

This topic is most relevant to GS Paper 3 (Economy). Prepare it from the angle of technological advancements, their impact on employment, and the need for policy interventions to promote inclusive growth and skill development. Also, consider its relevance to GS Paper 2 (Social Justice) concerning the 'just transition' aspect.