AI may lead to white-collar recession by 2027; is Indian IT ready?

Artificial intelligence (AI) and automation could lead to a white-collar recession in India by 2027, said a well-known technology analyst, Ray Wang, in an interview in January. Wang, who works with many Indian IT firms, said bot labour had already begun to replace human labour. The trend would reach an inflection point this year and then pick up more speed, he claimed.

However, a senior executive, who has led delivery teams at large Indian IT firms, said Wang had probably overestimated the adoption of automation and AI. “It is unlikely that it will happen by 2027; it may take a few more years,” he said.

Nightmare for techies, economy

If the prediction plays out, it would create a nightmarish scenario for millions of Indian youngsters who aspire to become software engineers. The IT industry has engineered an urban boom in India. Cities like Bengaluru, Hyderabad, Chennai, and Pune have been built on the tech industry, which employs over five million people directly, according to estimates.

Many industries, from real estate to travel, rely on the demand generated by tech employees. The recent growth in the Indian economy is likened to a lopsided ‘K’ curve. The line dipping down represents the rural and the poorer population, which is not earning and consuming well. The line climbing up is the salaried urban white-collar professionals whose real income and luxury consumption is the bright spot of the economy. The doomsday prophecy threatens to flatline the economy.

Brakes on hiring

But then, AI is capable of consuming white-collar jobs in many industries on its own without waiting for IT to start the slide. A recent report in The Wall Street Journal linked the layoffs in companies like Google and UPS to the growing use of AI. The new technology would eliminate entry-level jobs and the mid-management would be the new entry level, claimed the report.

The Indian IT industry disagrees with this analysis, but has nevertheless put the brakes on hiring. The industry hired 600,000 engineering graduates in 2022 and just 250,000 in 2023. According to media reports, the hiring target for 2024 ranges between 70,000 and 80,000, a 20-year low, and just 10 per cent of the 1.5 million engineers graduating this year are expected to find IT jobs. Indian IT companies like to hire and train fresh graduates, who comprise the bulk of their workforce.

More with fewer people?

IT CEOs often give two reasons for stalling recruitment. They hired in large numbers during the Covid years and still have room to utilise the existing staff better. The rate cuts in the US have forced clients to spend less on IT and, until demand revives, the hiring freeze would continue. In media interviews, they usually dismiss the fears of AI adding to the cutting back on hiring.

A senior executive at the India centre of a European MNC said there was a global freeze on hiring. “In India, we can replace those quitting, but in other countries, even that is not allowed. We are watching if AI lets us do more with fewer people,” she said.

No need for programmers?

Jensen Huang, the CEO of Nvidia, now called the godfather of AI, said last week that “AI agents” would soon simplify the implementation of enterprise software such as SAP and Oracle, a job that is now left to “millions of IT professionals around the world.” If he is proven right, the trillion-dollar enterprise software industry, the bread and butter of Indian IT, would face disruption.

Huang also said children should stop learning programming, as AI would be better at generating codes. Instead, they should focus on becoming experts in fields like biology, education, manufacturing, or farming, he said.

The contrarian opinion holds that given the nascent nature of AI and the complexity of the IT projects, the demand for tech professionals would continue, even though their mandates and skill sets may transform.

“In our company, repetitive jobs like testing started shrinking five years ago. But I don’t see large-scale disruption as you would still need humans to clear data, train AI, and ensure compliance,” says a software engineer, who works at a large Indian IT firm.

Spectacular rise

In the unfolding AI revolution, Nvidia is leading the battle cry. It makes GPU H100 chips, which meet the heavy computing needs of data centres running AI applications. The demand for these chips, which weigh 70 pounds and cost about $40,000 a piece, outstrips supply, and Nvidia is rationing them to customers.

The company recently announced a blockbuster quarterly result and set a new stock market record. It added $267 billion to its market cap or grew by the size of Netflix in a single day.

There are analysts who compare the AI boom to the dotcom bubble of the late 1990s. There are others who counter that AI has been in the making for many years now. They point out that all of us have been using AI already without realising it. When YouTube recommends the next dance video to keep you engaged, you may have just clicked on AI in action.

AI factories

Two recent breakthroughs put AI on steroids. One, programs like ChatGPT, which train on extremely large sets of data, become capable of generating original content or code, which was till now a human domain. This was the technology behind the new audio clip of the late J Jayalalithaa’s voice, which the AIADMK released recently.

These programs also let their users have human-like conversations with them and hence can be used by anyone without any technical skill. You can ask AI to find an insurance policy to match your specific requirements and it will do a job better than any human.

Nvidia’s GPU H100, the second major breakthrough, gave the computing firepower to crunch massive data and empower AI. According to Huang, what has come about now is nothing short of a new industrial revolution.

The tech industry loves to hype and build stunning narratives. Indian IT firms never body-shopped; they built a disruptive global delivery model. NR Narayana Murthy was not just an outstanding CEO; he was a New Age Prophet. Nvidia is not just making powerful chips for data centres, it is building AI factories.

Tipping point

But the buzz has found an eager audience, and companies across industries are racing to find ways to use AI. A spate of pilot projects that kicked off last year is coming to fruition now and anecdotal early evidence suggests that AI is a real deal.

A company, which has a large development centre in India, was a year ahead of its rival in developing a key product. After it got around to launching the product, it was shocked to find the competing product hitting the market in less than a month. The company suspects that the competitor used AI to speed up its development. It has brought in a new CTO, culled senior management, and put all hands on the deck to achieve 10 per cent productivity through AI in the next 12 months.

Nvidia says AI adoption is at a tipping point and companies are going beyond training databases and are actually making them work, which it calls “Inference”. The company made $1 billion in revenue from just enabling Inference in the last quarter.

Are Indian IT cos ready?

Indian IT companies are likely to feel the AI heat beyond the headcount. In the short run, businesses worldwide are expected to spend more on digitisation to prepare the groundwork for AI. This is good news for Indian firms, which do this kind of work, and the rising tide is likely to lift their boats as well. But once AI grows and starts eating into some of their existing work, they will come under pressure to reinvent.

Vineet Nayar, the former CEO of HCL technologies, a highly perceptive industry leader, says that decades ago, companies like IBM were so focused on protecting their existing revenue that they failed to adapt to the outsourcing trend and allowed Indian firms to elbow in. Now, the Indian firms could be making the same mistake, he suggests.

Accenture, the world’s largest IT services firm, recently announced that they had spent $2.5 billion to make 25 acquisitions to be battle-ready. When Salil Parekh, the Infosys CEO, was asked how his company was innovating, he said they had brought in Rafael Nadal as the brand ambassador.