The Indian software industry is facing significant changes. As artificial intelligence automates various areas of work, the question arises: How will the traditionally strong Indian IT industry adapt to these new realities? A look at current developments and possible future scenarios.
1. The current situation: facts and figures
The Indian software and IT industry employs around 5.4 million people and, according to the National Association of Software and Service Companies (Nasscom), generated revenues of around 254 billion US dollars in the 2023/2024 financial year. With around 67 percent of the global market, India is the world's largest outsourcing destination for IT services.
Traditionally, a large part of this success story is based on:
- Standardised programming tasks and code maintenance
- Systematic software testing and quality assurance
- Technical support and documentation processes
These areas are characterised by repeatable processes that are fundamentally suited to automation. AI tools such as GitHub Copilot and various test automation platforms are already demonstrating how such tasks can be supported technically.
2. First signs of change
The industry is already undergoing structural changes. Tata Consultancy Services (TCS), the country's largest IT services company, announced that it would cut over 12,000 middle and senior management positions. According to industry reports, an estimated 50,000 people in the industry lost their jobs last year.
A report by US investment bank Bernstein warns of major structural challenges: AI-based solutions could perform certain types of outsourcing activities more cost-effectively and efficiently than human workers. This primarily affects standardised tasks at the lower to middle skill levels.
For companies in Germany that have previously outsourced IT services to India, this raises new strategic considerations regarding their outsourcing approaches.
3. Adaptation strategies and new priorities
Many Indian IT companies have already begun to adapt their business models. Over the past twelve months, the industry has seen growth of more than 15 percent in jobs in the field of artificial intelligence and machine learning.
New fields of activity are emerging:
- Development and training of AI models
- Integration of AI systems into existing enterprise architectures
- Specialised consulting for industry-specific AI applications
- Governance and ethics guidelines for AI implementations
The NASSCOM-BCG report from February 2024 shows that 30 percent of the companies surveyed already offer generative AI consulting and model customisation services. This indicates a shift from pure service provision to more consulting-intensive activities.
4. Implications for German companies
Decision-makers in German companies have various considerations to take into account:
Short-term aspects:
- Assessment of existing outsourcing contracts with regard to AI integration
- Development of hybrid approaches combining AI tools and human expertise
- Training your own teams in AI-related technologies
Long-term strategies:
- Focus on complex, consultation-intensive projects
- Consideration of nearshoring options
- Establishing partnerships with AI-specialised providers
According to Bitkom, there are currently 149,000 unfilled positions for IT specialists in Germany. This creates space for new cooperation models that combine German project management with international expertise.
5. Long-term developments
Market research company Statista estimates the Indian AI market to be worth $4.1 billion in 2023 and forecasts growth to $13 billion by 2029. At the same time, the Bernstein report points out that India currently accounts for only 0.2 per cent of all global AI patents, compared to 61 per cent from China and 21 per cent from the United States.
Geopolitical developments in recent years have further reinforced the trend towards regional diversification of IT services. Companies are increasingly looking for alternatives that reduce geographical and political risks.
These developments could lead to greater regionalisation of IT services in the medium term, with nearshoring and hybrid models gaining in importance.
Conclusion
The Indian IT industry is undergoing significant structural change. AI is transforming established business models, but at the same time opening up new opportunities for specialised services. Companies that adapt to these changes early on can tap into new market opportunities.
Developments show that successful IT partnerships will increasingly focus on consulting expertise, specialisation and strategic cooperation in the future. Hybrid approaches that combine technological innovation with human expertise will play a central role in this.
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