India’s IT services industry, which powers everything from banking systems to retail platforms across the world, is projected to grow by 6-7 per cent in FY27. This estimate comes despite a major challenge: the growing use of artificial intelligence (AI), which is beginning to cut into the value of traditional IT service contracts.
The latest outlook was published on September 17, by HSBC Global Investment Research, one of the world’s leading financial analysis firms. According to the report, while headline revenue growth may appear slower at 5-6 per cent next fiscal, the number of projects being executed by Indian IT firms is expected to expand by 8-10 per cent, reflecting a rise in demand for technology-driven solutions.
Why AI is seen as both a threat and an opportunity
The report highlights a balancing act for Indian IT companies. On the one hand, AI-powered automation is reducing the cost of IT services, meaning that clients may spend less on individual contracts. Industry estimates suggest this could bring down the value of IT services contracts by 8-10 per cent over the next three to four years, which works out to an annual decline of around 3-4 per cent during 2025-27.
On the other hand, new opportunities are emerging from advanced AI systems. HSBC noted that as AI agents evolve into multi-agent systems, many companies will be forced to redesign their entire enterprise software architecture and infrastructure. This will open up new work for IT firms, ranging from software migration to systems integration, creating growth opportunities that may partly offset the deflationary effect of AI.
Strong US economy to boost Indian IT
One of the biggest positives for the sector is the strong performance of the United States economy, which is the largest market for Indian IT services. Many top American companies recently reported their strongest quarterly earnings in years, reflecting business resilience despite global uncertainties.
According to the HSBC report, this economic strength will improve corporate confidence and lead to higher technology spending in 2025. For Indian IT firms, which rely heavily on US clients, this tailwind could balance out some of the revenue pressure caused by AI-driven contract deflation.
Push and pull expected in 2026
The HSBC report anticipates a “push and pull” dynamic in 2026. On one side, AI automation will continue reducing the monetary value of IT contracts. On the other hand, strong global demand for digital services, from cloud adoption to AI-driven customer experiences, will keep the industry growing.
Thus, while growth may not be as explosive as in the past, India’s IT sector is still positioned for steady, moderate expansion.
AI is not a complete replacement for IT services
HSBC also dismissed fears that advanced “Agentic AI” systems, software agents capable of independent problem-solving, could make IT service firms obsolete. While hyperscalers (global tech giants like Amazon, Microsoft, and Google) are capturing a larger share of enterprise technology budgets, HSBC believes that a complete shift away from services is unlikely.
The reason is simple: businesses still need customised solutions, integration, and ongoing support that large-scale AI platforms alone cannot provide. Indian IT companies, with their expertise and cost competitiveness, will remain essential players in the global digital economy.
Job market and corporate restructuring
While the sector outlook is largely positive, Indian IT workers are facing mixed signals.
Tata Consultancy Services (TCS), India’s largest IT services provider, announced in August a wage hike for nearly 80 per cent of its workforce, primarily benefiting mid-level and junior employees. The move was welcomed as a sign that firms are willing to share profits with employees at a time of high attrition and inflationary pressures.
However, at the same time, TCS also revealed plans to lay off around 12,000 employees in 2025, representing roughly 2 per cent of its total workforce. The layoffs are part of an internal restructuring to make the company more agile and aligned with new technologies, especially AI.
This dual strategy reflects the industry’s reality: while demand for tech services is rising, companies are restructuring teams, cutting costs, and shifting skill sets to remain competitive in an AI-driven world.
What it mean for the common man?
For readers, the big takeaway is that India’s IT industry is not collapsing under AI pressure, but it is changing. While automation may reduce the value of some traditional contracts, it will also create new work in areas like AI integration, cloud infrastructure, cybersecurity, and enterprise redesign.
For India’s economy, which depends heavily on IT services as a major source of exports and employment, this steady growth of 6-7 per cent in FY27 provides reassurance. It means that even in the face of global technological disruption, Indian IT firms remain resilient, adaptable, and relevant.
Comments