AI doom or boom? Let’s not get over-anxious about the impact of this technology on India’s economy

It is time to assess its impact on India, the world’s fastest-growing major economy. Let’s examine the key characteristics of our information technology (IT) workforce and then assess how AI could impact consumption and thus GDP growth.

According to Nasscom, an industry body, India’s IT sector employs 6 million workers, about 1% of the country’s total employment. The IT workforce has increased at a compounded annual rate of 5.6% in the last three years, slower than the growth of 11.7% in the sector’s dollar revenues (18.2% in rupee terms). Based on unit-level data from the Periodic Labour Force Survey (PLFS), the IT sector employs a significant share of India’s young and educated workers.

About 57% of our IT workforce is no more than 30 years old, with three-fourths aged up to 35 years. A majority is younger than India’s median age of about 29 years. In comparison, less than 29% of all workers in the country are up to 30 years old, and about two in five workers are no older than 35 years of age. IT’s workforce in India, thus, is much younger than the country’s overall workforce.

Our IT workforce is exceptionally educated as well. Of every ten IT workers in India, nine are at least graduates; 20% of them hold a post-graduate or higher degree. In comparison, only 3% of India’s total workforce holds a post-graduate or higher degree and another 12% are graduates. Well-educated workers make up 90% of the IT sector but only about 15% in the overall workforce.

Four states—Maharashtra (21.4% of all IT jobs in India), Tamil Nadu (17.5%), Karnataka (17.1%) and Telangana (11.1%)—account for almost two-thirds of all IT jobs in the country. The sector accounts for 3-4% of total employment in Tamil Nadu, Karnataka and Telangana and 2.4% in Maharashtra.

Not only is our IT workforce young, educated and concentrated in a few states, it is upwardly mobile too. According to national data, the average personal disposable income (PDI) of a worker in the country was about ₹4 lakh in 2024-25. In comparison, among India’s 10 largest IT companies that together account for about 30% of the sector’s workforce, the average annual income of an employee was about ₹24 lakh in 2024-25.

If we assume that employee expenses account for 60% of this sector’s total revenue, the average income of an employee was ₹26 lakh, going by Nasscom data. An average IT worker, thus, earns six times what the average worker does. PLFS data also shows how tech workers are better paid.

This is what attracts young and educated Indians to the IT sector. Apart from better salaries and opportunities to work abroad, they could also contribute to the next technological revolution. But then, this also raises its potential to hurt India’s economy if an AI-led revolution disrupts traditional IT services and reduces jobs for the young and educated, which would hit consumption and GDP growth.

The unemployment rate among the young (aged up to 30 years) and educated (graduate and above) is already 12-13%, almost four times the national joblessness rate of 3.2%.

To what extent could it impact consumption and GDP growth? IT workers are estimated to directly account for 5-6% of India’s personal consumption expenditure in 2025-26, up from 3-4% a decade ago. This is after adjusting for the payment of personal income taxes and assuming an average propensity to consume that is same as the national average (of about 73% in 2025-26).

Of course, the spending share of this workforce could be higher for premium products, high-end restaurants or air travel. However, our analysis doesn’t reveal any strong correlation. There may be indirect (or second-order) effects too. However, the overall near-term harm to GDP growth is unlikely to be substantial.

Over the long term, the AI-led revolution is likely to enhance efficiency. As that happens, new jobs will be difficult to come by as they may not be generated in large numbers, but productivity gains will likely boost the income of those employed. Whether this offsets the short-term harm partially or entirely needs to be watched.

Sure, we have seen such revolutions in the past too, the last one as recently as at the turn of the century; the dot-com bubble created a frenzy, fizzled out and led to a recession, but it also improved productivity across the world. An AI-led revolution could follow a similar path, though the extent of its frenzy and fizzle could be much more pronounced and volatile, as the voice of financial markets has grown louder.

Overall, concerns of the economic harm that an AI-led revolution will inflict on India seem to be overblown.

As India didn’t participate in the AI boom, the impact of any bust or slowdown will also be limited. Heightened fear mongering also seems to be in line with a general reduction in risk tolerance since the 2008-09 global financial crisis.

As soon as any sign arises of an economic slowdown, financial markets tend to over-react, which often leads governments and central banks to intervene in support of the economy. This time, however, geopolitical tensions will make it difficult to intervene.

The author is an India economist, executive director at CLSA India and author of ‘The Eight Per Cent Solution’