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Introduction

India’s IT sector has been a key driver of economic transformation, powering exports, employment, and upward mobility for engineering graduates. However, structural shifts such as digital transformation, automation, changing client demands, and the rise of AI are reshaping its growth and employment prospects.

Body

How the IT Sector Contributes Significantly to Exports and Employment

• Major Export Contributor: The IT sector accounts for approximately 50% of India’s total services exports, making it a linchpin of the country’s foreign exchange earnings.
• Large Employment Base: In 2024, the IT sector employed over 5 million people across engineering, sales, management, and support roles, offering stable job opportunities to a broad portion of India’s youth.
• Economic Value Addition: The IT industry contributed around 7% to India’s GDP in 2024, reflecting its critical role in economic output and national growth.
• Pathway for Upward Mobility: IT and ITeS jobs have historically been widely accessible to engineering graduates, serving as a straightforward path to middle-class prosperity in India.
• Multiplier Effect: The sector has significant spillover benefits, supporting jobs in ancillary industries such as real estate, transportation, telecom, and education due to the demand generated by IT professionals.

Key Challenges the IT Sector Faces Today Due to Structural Shifts in the Global Economy

• AI and Automation Threat: The rise of AI threatens many entry-level and repetitive jobs in IT, as generative AI and automation can perform tasks that previously required large numbers of fresh graduates.
• Skill Mismatch: Growing “skill-mismatch” issue, where the existing workforce does not align with rapidly changing client and industry requirements like demand for AI, cybersecurity, and cloud skills over basic support functions.
• Global Economic Volatility: Reduced global spending especially from major clients in the US and Europe due to economic uncertainties post-pandemic has led to decreased net hiring and project delays.
• Wage Stagnation: Despite sector growth, starting salaries in IT have remained stagnant for nearly a decade, impacting living standards and reducing the sector’s attractiveness to new talent.
• Alternative Opportunities and Declining Bench Strength: GCCs employing nearly 2 million and a thriving startup ecosystem are pulling talent from traditional IT, as firms cut excess bench staff.

Policy Measures to Ensure Sustained Employment Generation in the Industry

• Holistic Skilling Initiatives: Implement rapid, affordable, and continuous skilling and upskilling programs focused on emerging technologies like AI, cloud computing, cybersecurity, and chip design to align the workforce with new industry needs.
• Overhaul of Higher Education: Reform engineering and technical education to include applied, hands-on learning, fostering domain expertise and adaptability rather than rote skills.
• Incentives for Diversification: Provide policy incentives to increase growth in related sectors such as biotech, pharmaceuticals, and advanced manufacturing, reducing over-reliance on IT for mass employment.
• Support for Startups and SMEs: Facilitate easier access to funding, mentorship, and global markets for startups, including those working in deep tech and new-age IT services, thereby expanding the employment base.
• Encourage R&D and Innovation: Increase government and private sector spending on R&D, creating an environment that nurtures innovation centers, incubation labs, and next-generation product development hubs.

Conclusion

India’s IT sector, though a global outsourcing leader, faces pressures from automation, AI, and shifting markets. Moving up the value chain, fostering specialised skills, and diversifying services backed by reskilling and innovation‑focused policies can sustain its role as a driver of exports, jobs, and tech leadership.

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