India’s IT Dream Is at a Crossroads

Syllabus: GS3/Economy

Context

• The ongoing wave of layoffs in India’s IT sector, often described as ‘silent exits’, reflects deeper structural changes, as IT giants like TCS, Infosys, and Wipro are aligning their workforces with a new digital reality driven by AI and automation.

About India’s IT Sector

• India’s Information Technology (IT) sector has long been synonymous to India’s economic growth, global competitiveness, and digital transformation for nearly three decades.
• It contributes nearly 7% of India’s GDP in 2024–25 (FY25) while employing about 1% of the workforce, and is likely to contribute 10% by 2026 and 20% of GDP by 2030.
  • It has driven 25% of India’s total exports to countries like the US, European countries, Asia, Australia & New Zealand, and Canada.

Structural Challenges: Global Pressures and Local Realities

• Skill Mismatch: India’s IT workforce, especially mid-career professionals, faces a mismatch between available skills and market demands.
  • Legacy competencies such as mainframe management, or non-cloud systems are becoming redundant.
  • The new demand is for expertise in AI integration, cloud-native systems, and generative technologies.
• End of the Digital Assembly Line: India’s IT miracle was built on a scalable model: recruit engineers, train them quickly, and deploy them globally.
  • That model, while once efficient, is now obsolete. Clients prefer agile teams with cross-functional capabilities in cloud computing, data analytics, and cybersecurity, rather than large armies of developers.
• Automation, AI, and Global Headwinds:
  • Mass layoffs: Major firms like TCS and Amazon have cut tens of thousands of jobs.
  • Shrinking foreign demand: Global economic uncertainty has led to reduced outsourcing budgets.
  • AI disruption: Generative AI and automation are replacing routine coding and support roles.
• Tightening Global Policies: Stricter US immigration rules, particularly higher H-1B visa fees and localization mandates, have forced Indian firms to hire more locally abroad.

Related Support and Policy Push

• Digital India Mission: A flagship initiative to empower citizens through digital infrastructure and services.
• Software Technology Parks of India (STPI): 67 centers across the country to promote software exports and innovation.
• 100% FDI: Allowed in the IT sector under the automatic route, encouraging global investment.
• National Policy on Software Products (2019): Aimed at developing India as a software product nation.

Way Forward: From Retrenchment to Reinvention

• Large-Scale AI Upskilling: TCS has already upskilled 550,000 employees in foundational AI and 100,000 in advanced AI applications, a benchmark other firms must emulate.
  • Government initiatives like FutureSkills Prime, launched by NASSCOM and MeitY, aim to reskill over 1 million professionals in data, AI, and cybersecurity.
• Curriculum Overhaul: Engineering education must pivot from rote programming to innovation-driven learning.
  • The new National Curriculum Framework for Higher Education (2023) recommends integrating AI, machine learning, and design thinking across all technology streams.
• Supporting Startups and Deep-Tech: India’s future IT growth lies in product innovation and deep-tech entrepreneurship.
  • The Startup India Seed Fund and Digital India Innovation Fund are nurturing AI and cybersecurity startups to diversify the sector’s base and create new employment pathways.
• Strategic Focus Areas: Deep tech (AI, blockchain, quantum computing) is identified as a key growth driver.
  • Government initiatives like Digital India 2.0 and BharatNet aim to expand digital infrastructure and rural connectivity.
• Building a Human-Centric Transition: Displaced workers need access to career transition support, mental health counselling, and reskilling grants.
  • Policymakers could consider a 6–9 months’ salary compensation mandate for mass layoffs, ensuring workers have a buffer to re-skill and re-enter the market.

Source: TH