India’s $264 billion IT services industry has its eyes on a $400 billion milestone by 2030. It’s an ambitious target, but one that now sits uncomfortably against slowing growth, layoffs and a business model colliding with automation. AI was supposed to be the next big growth engine. So far, it’s mostly been noise.
The sector’s dependence on the time-and-materials model—where revenue scales with billable hours—is now its biggest drag. Large language models and automation are cutting those very hours. And while every major IT firm talks about “AI transformation”, revenue per employee has barely moved.
Neeti Sharma, CEO of TeamLease Digital, said the sector is at “the lowest of lows.” Hiring for new skills has stalled while layoffs continue for those who haven’t upskilled. But she believes this reset is necessary. “All industries will need to make tech investments with AI and agentic AI. The need for tech resources will only go up,” she said.
“Revenue models are already undergoing a change, and headcount will not be the only metric for growth.”
What’s Happening?
That shift is forcing hard questions about where growth will actually come from. Bessemer Venture Partners believes India’s core advantage in IT—the rare mix of global-facing capability and domestic engineering strength—still holds. But it warns that the incumbents must either “upgrade or lose”.
According to the firm, legacy players are too dependent on outdated engines, like labour cost arbitrage and steady contract pyramids, which no longer work in an AI-driven world.
Sanchit Vir Gogia, CEO of Greyhound Research, puts it bluntly: “The $400 billion ambition is realistic, but only if the sector makes deliberate choices that depart from its historical playbook.”
Greyhound’s data shows nearly seven in 10 global clients have already restructured or paused contracts to factor in automation gains. “The conversation is no longer about expansion but about scope reduction,” Gogia said. Clients want vendors to pass on efficiency benefits, not just talk about them.
In one case, a European retailer automated its internal support functions for 30% lower cost and pushed its Indian partner to accept an outcome-based pricing model. As a result, the vendor froze hiring and deferred wage hikes. Tier 1 firms, which thrive on large-scale contracts, are now the most exposed. Smaller firms, meanwhile, are pivoting faster, co-creating AI services with startups and showing measurable results in weeks rather than quarters.
Yet, even that progress is being undercut by the rapid rise of global capability centres (GCC). Greyhound’s GCC Tracker shows that over half of large enterprises are now building their own AI delivery hubs in-house. When that happens, vendors lose both business and influence.
Still, there’s room for reinvention. Gogia said clients are willing to pay more for transparency and impact. “Indian IT’s value proposition has to evolve from manpower to mastery,” he said. Firms that adapt will lead the next chapter of India’s tech story. Those that don’t may find themselves written out of it.
So, is There Hope?
UnearthInsight forecasts a 7-8% CAGR for Indian IT till 2030, with the industry potentially touching around $430 billion if everything goes right. However, near-term growth is expected to stay flat—just 3-5% in FY26, taking overall revenue to around $290-296 billion.
Gaurav Vasu, CEO of UnearthInsight, said the industry’s AI talk hasn’t yet translated into numbers. “If AI revenues are not increasing your revenue, your revenue per employee or your margin per employee, then it’s just part of the existing 3-4% growth,” he said.
He pointed out that many IT firms are reporting higher revenue per employee solely because of headcount cuts, not real productivity. “If AI was truly impacting revenue per employee, you wouldn’t have to reduce headcount,” he explained. Despite claims of $100 million in ‘AI revenue’, overall growth remains unchanged.
“If the old business continues and the new AI business adds to it, revenue should rise faster. It hasn’t. That means the pipeline doesn’t exist.”
Vasu expects the industry to close FY26 with 3-4% growth, essentially flat compared with this year. He cited weak deal pipelines and slower client spending, particularly in the December and March quarters—historically the slowest periods. “Even after all the AI announcements, overall industry growth will not go beyond 4%.”
UnearthInsight’s latest report also highlights that GCCs grew at 10-12% in FY25, driving most of the industry’s expansion, while traditional IT services slowed to 5-6%. The fastest-growing tech services firms, it found, are those focusing on digital and AI-led transformations, proprietary AI tools and outcome-based solutions.
The sector’s road to $400 billion will depend on how quickly it can move from selling manpower to selling measurable impact. For now, AI hasn’t lifted the top line; it’s just masking inefficiency.
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