Market Volatility: Tech Sector Under Scrutiny

India's IT Sector Faces Structural Shift as AI and Automation Take Hold

India's IT sector, once a beacon of hope for millions of engineering graduates, is facing a structural shift as artificial intelligence, hostile American immigration policy, and a deepening reluctance among Indian IT giants to hire at scale take their toll.

According to a 2025 EY report, Indian IT services companies have reduced entry-level roles by 20-25 percent due to automation and AI. Industry leaders warn that AI may eliminate up to half of entry-level white-collar positions, including those in coding, testing, and support. This is not a temporary dip, but a fundamental realignment of the industry.

The data paints a stark picture: workforce growth in India's tech sector dropped to just 2.3 percent in FY26, despite the industry's continued expansion, as companies move decisively away from large-scale fresher hiring towards more specialized roles. Active tech job openings fell to a 28-month low of 93,000 in May 2026, marking a 14 percent month-on-month and 17 percent year-on-year decline, according to specialist staffing firm Xpheno. Senior openings fell even more sharply, dropping 67 percent.

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The Shift to AI-Driven Hiring

Behind this contraction lies a fundamental shift in how companies think about people. As Nitin Bhatt, technology sector leader at EY India, notes, a structural reset is underway in which revenue growth is decoupling from headcount growth. Clients are pushing hard on pricing, services are becoming more platform-driven, and AI is enabling leading players to deliver impact with leaner teams.

This transition is reshaping the workforce from within. As volume hiring gives way to targeted acquisition of specialized skills, companies are left with a larger share of higher-cost, older employees. Almost half of Infosys' 320,000 employees are now over 30 years old, the highest in the last 15 years.

Pressure from Abroad

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Pressure is also arriving from abroad. Indians account for over 70 percent of all foreign workers in the United States, making the Trump administration's America-first visa policies disproportionately damaging to Indian tech workers. Those already on the ground in the US face brutal timelines if laid off, while those hoping to make the journey are increasingly reconsidering.

A Growing Opportunity in AI Hiring

Despite the challenges, the outlook is not entirely bleak. AI hiring in India is projected to grow 32 percent year on year in 2026, approaching 3.8 lakh roles, with IT software and services holding the largest share at 37 percent. The sector is not dying – it's transforming.

However, the real danger lies in the speed of that transformation outpacing India's talent pool's ability to keep up, leaving an entire generation caught between a labour market that no longer needs what they were trained to offer and an AI-driven future for which most are not yet prepared.