The rapid expansion of artificial intelligence is expected to deliver significant productivity gains, but the transformation could also create a difficult adjustment for workers as companies redesign jobs, automate routine tasks and rethink workforce requirements.
AI is increasingly being adopted to improve efficiency, automate repetitive work and help employees complete tasks faster. However, the benefits are unlikely to be distributed evenly across the labour market, with some occupations facing greater disruption than others.
AI could reshape jobs, not just eliminate them
The impact of AI is increasingly being viewed as a transformation in the nature of work rather than simply a question of machines replacing humans. Many businesses are using AI to augment employees, while some roles are being redesigned as technology takes over repetitive or easily automated tasks.
S&P Global’s 2026 research found that companies primarily view AI as a tool to improve process efficiency and employee productivity rather than directly reduce headcount. However, its data also showed a mildly negative net employment impact globally over the previous year.
The transition could be particularly challenging for workers in routine cognitive and administrative roles. At the same time, demand is expected to grow for employees with AI, technology, analytical and digital skills.
Productivity gains could come with a cost
AI has the potential to significantly increase productivity by allowing employees to complete tasks more quickly and enabling companies to produce more with fewer resources.
However, higher productivity does not automatically translate into more jobs. As businesses become capable of producing the same output with fewer workers, labour demand could decline in some occupations.
The International Monetary Fund has noted that AI will change many jobs, with some roles being enhanced while others are transformed or displaced. The pace of the current AI transition makes workforce adaptation increasingly important.
Young workers face a particular challenge
One of the biggest concerns is the impact of AI on entry-level employment. If companies increasingly use AI for tasks traditionally assigned to junior employees, young workers could find it harder to gain the experience required to progress into higher-skilled positions.
India’s Economic Survey 2024-25 warned that AI could result in significant labour displacement, particularly among workers in the middle and lower portions of the wage distribution, while also highlighting the potential for AI to augment worker productivity.
Research published by Ashoka University’s Isaac Centre for Public Policy in July 2026 similarly pointed to signs of job polarisation in India, with relatively limited growth in medium-skill employment and greater AI exposure among high-skilled cognitive occupations.
India’s IT sector faces a separate AI challenge
The impact of AI is already being felt in India’s information technology sector, where companies are facing weak deal wins, cautious client spending and limited discretionary technology projects.
The July-September quarter is typically an important period for IT companies, but global economic uncertainty has delayed client decisions and kept technology spending subdued. The sector is consequently expected to report a muted Q2 performance.
According to HDFC Securities, large IT companies could report quarterly revenue growth ranging from a 0.4% decline to 2% growth in constant-currency terms. Mid-sized IT firms are expected to perform somewhat better, with growth estimated between 0.6% and 6.3%, partly supported by acquisitions.
The weaker-than-expected first half has also raised concerns over the sector’s full-year outlook, with a potential recovery in FY27 increasingly dependent on the second half.
AI savings put pressure on IT pricing
While AI is creating new opportunities for IT companies, it is also putting pressure on their traditional business models.
Clients are increasingly seeking to retain part of the cost savings generated through AI, putting pressure on pricing for new contracts and renewals. At the same time, IT companies are pursuing AI-led projects to compensate for revenue lost through automation and efficiency gains.
Fresh AI-focused deals are expected to partly offset an estimated 6-7% reduction in revenue from AI-driven efficiencies, although converting these opportunities into significant and sustainable business remains a challenge.
Many new contracts are also increasingly linked to outcomes, while renewals are being negotiated at lower prices, adding to pressure on revenue growth.
AI could create new opportunities for IT companies
Despite the disruption, businesses still face challenges in deploying generative AI across complex systems and highly regulated industries. This could leave technology service providers with an important role in integrating AI tools with existing enterprise systems.
Earlier analysis from JPMorgan also suggested that AI could create new areas of work for Indian IT companies, including legacy-system modernisation, AI-agent development, SaaS transformation and AI integration.
This means AI could simultaneously threaten some traditional IT services while creating demand for newer technology capabilities.
Reskilling becomes critical
As AI changes the skills employers demand, reskilling and upskilling are likely to become increasingly important. Workers may need to learn how to use AI tools effectively rather than compete directly with them.
The challenge for governments and businesses will be ensuring that workers can move into emerging roles without prolonged periods of unemployment or falling incomes.
At the India AI Impact Summit 2026, experts also highlighted the need for coordinated skills development, social protection and governance frameworks to strengthen labour-market resilience as AI adoption accelerates.
Weak rupee may offer some relief to IT companies
For India’s IT sector, a weaker rupee could provide some support to margins, while improved operational efficiency and higher employee utilisation may help offset rising salary costs.
However, investor sentiment towards the sector remains fragile. Concerns over AI-led revenue pressure continue to weigh on the outlook, even as companies maintain strong cash flows and pursue new AI-related opportunities.
Broader market factors, including rising global bond yields, higher crude oil prices and continued foreign investor selling, could also influence IT stocks in the near term.