In a country where software exports have long been a benchmark of economic prowess, the IT services industry is now grappling with a paradox: it is growing faster in revenue than in headcount. Last fiscal year, the sector generated a record $315 billion, up 6.1 % from the previous year, while the workforce expanded by only 2.3 %. This divergence, revealed in a recent interview with businessline, signals a shift in how value is created and captured in a market that has traditionally linked billable hours to employment numbers.

The slowdown in hiring has not translated into a weak order book. Mid‑sized firms reported revenue gains of 6–7 %, and the larger players added 2–3 %. The pattern is clear: the industry is moving toward higher‑margin, technology‑enabled services that demand less labor per dollar of output. AI, in particular, is reshaping both client expectations and internal delivery models. NASSCOM president Rajesh Nambiar explained that the rise of generative models and other AI breakthroughs has forced companies to abandon time‑and‑materials contracts in favor of outcome‑based agreements. He estimated that 20–25 % of firms may struggle to make the transition, while most mid‑ and large‑size players are already launching AI‑centric revenue streams that currently account for roughly 10 % of their top line but are poised to grow rapidly.

Investment patterns mirror the broader economic reality in India. The country allocates about 0.65 % of its GDP to research and development, a fraction of the 2.8 % benchmark set by advanced economies. Nambiar noted that services firms tend to be cautious spenders, prioritizing short‑term shareholder returns over long‑term deep‑tech investment. Even though the industry’s cash reserves are substantial, the longer pay‑back horizon for AI and compute projects curbs current R&D outlays.

Talent is both a driver and a bottleneck in this transformation. Traditional programming and project‑management roles are not disappearing; they are being re‑engineered. AI can automate up to 60 % of routine tasks, shrinking the need for large workforces to focus on higher‑value work. Nambiar highlighted that while generative models lower the barrier to new AI development, modernizing legacy systems remains a human‑intensive endeavour. To bridge this gap, NASSCOM is partnering with the government to craft an AI curriculum that aligns university graduates with industry needs.

Global Capability Centres (GCCs) have emerged as a complementary model rather than a threat. Many services firms now maintain GCC practices to serve the captive‑sourcing model. GCCs tend to offer deeper domain expertise and higher responsibility for employees, whereas services firms provide broader industry exposure. Both models are expected to coexist, with competition largely confined to individual companies.

Policy priorities outlined by NASSCOM focus on creating a stable investment climate. First, maintaining policy certainty is essential to attract global investors. Second, better coordination between central and state governments can prevent fragmented labour and tax rules. Third, narrowing the gap between ministerial intent and ground‑level implementation—especially for GCCs—is crucial. Geopolitical risk remains a concern because 63 % of the sector’s revenue comes from the United States. While current tariff or visa restrictions have not yet dented revenue, they could hamper talent mobility and ease of doing business. NASSCOM’s U.S. CEO forum is actively engaging lawmakers to shape this policy dialogue.

In short, India’s IT services industry stands at a crossroads. The sector’s resilience is anchored in its ability to adopt AI, streamline delivery, and invest wisely in human capital and technology. Whether it can sustain the 6–7 % revenue trajectory will hinge on how effectively it navigates headcount constraints, shifts to outcome‑based models, and secures a coherent policy framework that balances global competitiveness with domestic talent development.