AI Demand Seen Outweighing Revenue Pressure for Indian IT by FY30

A new analysis suggests that artificial intelligence could transform from a near-term drag into a structural growth engine for India's IT services industry. The report, which examines the sector's trajectory through the end of the decade, argues that AI-driven volumes are likely to surpass the revenue compression caused by automation by FY30.

The near-term outlook remains cautious. Weak macroeconomic conditions and softer discretionary demand are expected to keep growth constrained in the immediate future. The industry is navigating multiple macro and micro headwinds, including geopolitical uncertainty, rising competitive intensity, and structural pressure from global capability centres.

However, the report's central thesis is that AI will eventually create new growth opportunities. While productivity gains from AI may initially be passed on to clients, compressing revenues, the scale of AI-related work is projected to overtake that deflationary effect by FY30. The brokerage expects US-dollar revenue growth for the sector to reach mid- to high-single digits by FY31, supported by increasing AI demand.

A potential inflection point is seen within the next 18 to 24 months, with FY28 emerging as a critical year for stronger growth. The report characterises AI's impact on systems integrators as "near term negative but long term positive," expressing a preference to believe that AI will ultimately provide robust growth opportunities.

There is currently no evidence of a major contraction in large deals or IT-services budgets among large global companies due to AI. In fact, AI spending is expected to expand sharply. Generative AI's share of overall IT services spending is projected to double to 11 per cent by 2029, according to estimates cited in the report. Total technology spending linked to AI is also expected to rise across software, services, and hardware, with AI applications and platforms seeing particularly strong growth.

Signs of resilience are already visible in Indian IT demand. Most companies have reported healthy year-on-year order-book growth, aided by cost-saving and vendor-consolidation deals. Revenue per employee has also improved across covered companies, suggesting greater use of AI tools in delivery.

The key question ahead, the report notes, is whether AI-driven demand can scale quickly enough to offset the revenue deflation created by productivity gains. The balance is expected to improve towards FY30-FY31, with the risk remaining that IT services could lose a share of global AI spending to hardware and software providers.