The United Nations Economic and Social Commission for Western Asia (ESCWA) and International Labour Organization (ILO) have issued a comprehensive warning about artificial intelligence's impact on global employment and economies. According to their latest report titled "Artificial Intelligence and Employment Futures for the Arab Region," AI technologies are already beginning to transform industries across the region, affecting job structures, skills requirements, and productivity levels. The disruption is expected to intensify significantly by 2035 as automation, generative AI, and digital systems become more integrated into workplaces and public services. While AI could create substantial economic growth and new employment opportunities, the report cautions that without proper planning and investment, technological disruption could deepen inequality, increase unemployment among vulnerable groups, and widen existing social and economic divides.
Indian IT companies are experiencing significant challenges due to artificial intelligence implementation, with Citrini Research warning that AI can destroy their business models. According to reports from NDTV Profit, this disruption has resulted in thousands of employee layoffs across the sector. The impact extends beyond operational changes, as hiring has declined by 30-50% according to Lalit Ahuja, founder of ANSR, a firm that helps companies establish global capability centres in India. Some firms have scaled back ambitious hiring plans from 5,000 employees to about 2,000, representing a fundamental shift in the sector's employment dynamics. This has a direct impact on India's macroeconomic stability, which relies heavily on software services.
Global Capability Centres (GCCs) have become India's primary value-addition strategy, but AI is challenging this foundation. As reported by NDTV Profit, GCCs were designed to create enough value for clients that even after losing cost advantages, Indian IT companies would retain their business. However, hiring is down by 30-50% with some firms scaling back from ambitious plans. If GCCs shift toward fewer but more skilled roles, export revenues can continue growing while employment elasticities fall, creating a fundamental shift in the sector's business model. This represents a wake-up call for the industry's traditional approach to value creation.
India's services export dependency on software services presents significant vulnerabilities. According to RBI data cited in the report, software and business consulting services account for nearly three-quarters of all export receipts, both built on the same labour arbitrage foundation. The country earns more from freight charges on exports than from all its intellectual property combined, highlighting the challenge of transitioning to higher-value services. Additionally, foreign legal and accounting firms remain under tight restrictions to protect domestic professionals, limiting India's ability to become a global hub for legal, accounting, and high-end advisory services. Financial services also show concerning trends, with GIFT City failing to capture cross-border flows a decade after conception. As a result, India's services exports remain heavily concentrated in IT, ITES, and generic business services rather than higher-value professional and advisory exports.
The convergence of manufacturing and services presents a strategic opportunity for India's export diversification. As reported by NDTV Profit, companies now gain value from software, data, subscriptions, and services wrapped around physical products. Machines are connected through Internet of Things (IoT) systems, generating data for predictive maintenance, automation, and customer lock-in. Examples like John Deere show how tractor makers can evolve into data and precision-agriculture platforms through connected devices and analytics. Similarly, Xiaomi and other Chinese EV firms like XPeng and NIO increasingly operate as software-first businesses, where technology drives innovation and billing. For India, this creates opportunities for domestic manufacturing and software firms to integrate their offerings, potentially without requiring significant government policy changes or structural reforms.
According to economist Ajay Shah, India should not become overly pessimistic about its IT, ITES, and GCC ecosystem, but the industry's capital allocation model must change. As reported by NDTV Profit, many firms have historically returned cash to shareholders instead of reinvesting in R&D, which may no longer be sufficient in an AI-driven world. The report emphasizes that for services export sustainability, India will need broader reforms including deeper AI adoption, stronger education and skilling systems, higher R&D intensity, domestic ownership of IP, and a more diversified export base beyond traditional software services. This requires a coordinated effort between industry, government, educational institutions, and global firms, along with doubling down on innovation to ensure India remains central to the next phase of the global technology and services economy.
