Generative AI: A Double-Edged Sword for India's IT Services Sector

Generative AI offers significant efficiency gains but presents a major challenge for India's IT services industry. While Indian firms have thrived by serving Western clients, they now face a crucial question: will AI's productivity dividend translate into revenue growth, or will intense competition lead to price reductions that negate these gains? Analysis suggests deflationary pressures are already emerging, with AI-driven efficiency improvements fueling price competition and potentially slowing medium-term growth to 4-5%. While some firms have seen success with GenAI projects, AI often replaces rather than supplements existing IT spending. Clients are demanding and receiving cost savings from AI, forcing IT service providers to shift to outcome- or value-based pricing models to capture the value generated by AI, rather than just enabling efficiency gains further down the value chain.