India's Real Estate Sector Grapples with AI-Driven Challenges in the Tech Industry
New Delhi: The outsourcing industry, India’s largest white-collar employer, is facing a significant slowdown. The top five software services exporters have seen their dollar revenue grow at a rate of less than 3% for 10 consecutive quarters, a stark contrast to the double-digit growth experienced in the previous two decades. This downturn is causing ripple effects across various sectors, including real estate and mortgage underwriting.
Last week, Bengaluru-based Infosys Ltd. forecasted a much slower pace of sales increase than analysts had expected. At HCL Technologies Ltd., revenue for the March quarter declined from the previous three months. After a four-month, $115 billion rout, investors are losing faith in a business model that relied heavily on India’s young engineers, who provided a wage advantage over developed countries.
Outsourcing generated a million middle-class jobs annually and drove ancillary employment in real estate, retail, and services, according to Mumbai-based Marcellus Investment Managers. However, in the past 36 months, the top five firms have shed a net 85,000 employees. Last year, uncertainties about US tariffs led clients to pause tech upgrades. This year, the war in Iran has added to the challenges. However, the more durable threat is from AI models like Claude and Mythos, which can fix bugs and write code at a fraction of the human cost.
Cities like Hyderabad, Pune, and Bengaluru, where knowledge workers account for a significant share of homebuyers, are witnessing sluggish sales and rising inventories of unsold apartments. Investors who bought under-construction properties, hoping to rent them to software engineers, are finding few takers. Even global tech heavyweights are shifting their investments from programmers to high-end chips and data centers. Thousands of Oracle Corp.’s India employees lost their jobs last month.
Banks are paying attention, as their credit portfolios are now exposed to stagnating salaries and job losses in a customer group previously considered low-risk. The economics research team at Canara Bank, a Bengaluru-based, state-owned lender, has proposed several measures. For borrowers susceptible to automation risk, they suggest a lower loan-to-value ratio, such as 60% instead of the standard 80%, to create a larger equity buffer. For corporate lending, they recommend including intellectual property or proprietary data as supplementary collateral. This ensures the bank has a claim on the AI technology that replaced the labor. Finally, they propose requiring corporate borrowers undergoing AI-led restructuring to divert a percentage of labor cost savings into a debt-service reserve account.
Top executives at software companies remain optimistic, believing that increasing AI adoption will lead to more work, not less. As AI agents become more powerful and affordable, clients will deploy them aggressively to cut costs and rely on trusted outsourcing firms to automate more processes. While this is a reasonable thesis, it does not support the industry’s historic pace of job creation. Tasks like cleaning up data and putting it in the cloud are labor-intensive but one-time efforts. Once the plumbing is fixed, AI agents will take over.
Even for longer-term projects, clients won’t pay the same rates as before. A supplier managing software quality with 2,000 employees will soon be expected to do it with 500, thanks to AI. As the cost of artificial intelligence plummets toward the price of electricity, contract values for outsourcing will deflate.
Investors agree. On the eve of its quarterly earnings, Infosys announced a collaboration to combine OpenAI’s technology with its own agentic service. Despite this, the market focused on its weak revenue guidance, causing the stock to fall nearly 7% on Friday. To protect margins, the $315 billion Indian information technology industry will have to shrink its 6-million-strong workforce. Firms may be better off returning cash via buybacks while other sectors take up the slack in the labor market and stake a claim on a bigger share of bank loans.
In a survey of hiring intentions across 20 cities conducted before the Iran war, 78% of employers in healthcare and pharmaceuticals, and 70% of firms in manufacturing, engineering, and infrastructure, said they wanted to expand their payrolls between April and September, the first half of India’s financial year. By contrast, only 38% of IT firms and 32% of business process outsourcing units—call centers—want to bulk up. The shift away from AI-exposed employment is unmistakable. As other models match or surpass Mythos’s capabilities in autonomous coding, more banks will reassess their lending preferences. Nurses, mechanics, and technicians will have higher job security and may enjoy faster wage growth, commanding better housing choices and more relaxed underwriting norms.
