How AI is Reshaping India's Tech and Property Markets
India’s outsourcing industry, its largest white-collar employer, has seen a significant slowdown. The dollar revenue at the top five software-services exporters has grown at a rate slower than 3% for 10 consecutive quarters, a stark contrast to the double-digit growth of the previous two decades.
As these companies cut back on hiring to navigate the existential threat posed by artificial intelligence (AI), the ripple effects are being felt across various sectors, including real estate and mortgage underwriting. Infosys, for instance, recently forecast a much slower increase in sales than analysts had anticipated. At HCL, revenue for the March quarter declined from the previous quarter.
The tech industry, which has been a major driver of middle-class job creation, is now shedding jobs. In the past three years, the top five firms have collectively laid off a net 85,000 employees. This trend has been exacerbated by global uncertainties, such as the war in Iran, and the rise of AI models like Claude and Mythos, which can perform tasks at a fraction of the cost of human labor.
Cities like Hyderabad, Pune, and Bengaluru, where knowledge workers form a significant portion of homebuyers, are experiencing sluggish sales and a growing inventory of unsold apartments. Even global tech giants are shifting their investments from programmers to high-end chips and data centers. Oracle, for example, laid off thousands of employees in India last month.
The financial sector is also taking notice. Banks, which have traditionally treated tech employees as low-risk borrowers, are now reassessing their credit portfolios in light of stagnating salaries and job losses. Canara Bank’s economics research team has proposed several measures to mitigate these risks. These include mandating a lower loan-to-value ratio for borrowers susceptible to automation, using intellectual property or proprietary data as collateral, and requiring corporate borrowers to divert a portion of labor cost savings into a debt-service reserve account.
Despite these challenges, top executives in the software industry remain optimistic. They argue that increasing AI adoption will lead to more work for outsourcing firms, not less. However, while this thesis is reasonable, it does not support the historical pace of job creation in the Indian IT sector. Data cleanup and cloud migration may require initial labor, but once these tasks are completed, AI will take over, reducing the need for human intervention.
For longer-term projects, clients are likely to demand lower rates. A supplier that previously managed software quality with 2,000 employees may soon be expected to do the same with just 500, thanks to AI. As the cost of AI technology continues to decline, contract values for outsourcing will likely deflate.
Investors are already reacting to these changes. Infosys, despite announcing a collaboration with OpenAI, saw its stock fall nearly 7% on the day of its quarterly earnings release. To protect margins, the $315 billion Indian IT industry may need to reduce its workforce of 6 million. Companies might also consider returning cash to shareholders through buybacks while other sectors absorb the excess labor and expand their share of bank loans.
A recent survey of hiring intentions across 20 cities showed that 78% of employers in healthcare and pharmaceuticals and 70% of firms in manufacturing, engineering, and infrastructure plan to expand their payrolls in the first half of the fiscal year. In contrast, only 38% of IT firms and 32% of call centers intend to hire more staff.
The shift away from AI-exposed employment is clear. As AI models continue to improve, more banks will likely re-evaluate their lending preferences. Jobs in healthcare, manufacturing, and infrastructure are expected to offer higher security and faster wage growth, potentially leading to better housing choices and more relaxed underwriting norms for these sectors.
