AI breaks India’s linear growth model: Nasscom

For nearly two decades, India's technology sector endeavored to generate revenue more rapidly than its workforce, yet consistently fell short. The advent of artificial intelligence (AI) has now facilitated this previously unattainable growth, though not for the reasons initially anticipated, according to Rajesh Nambiar, president of the National Association of Software and Services Companies (Nasscom).

During a recent discussion, Nambiar elucidated how AI has rendered the once-believed linear growth model obsolete, enabling the industry to expand revenue without a proportional increase in employee headcount.

Traditionally, revenue and headcount in the Indian technology industry rose at nearly identical rates across IT services and business process management (BPM). Contracts were traditionally billed on a time-and-material basis, necessitating the deployment of additional employees to augment revenue streams. However, Nambiar noted that the industry's relentless pursuit of this linear growth model never truly succeeded.

AI has now altered this equation by significantly enhancing productivity, allowing companies to achieve revenue growth without a corresponding surge in headcount.

Over the past two to three years, the divergence between revenue and headcount growth has become increasingly evident. Nasscom reported that the sector, encompassing IT services, BPM, engineering research and development (ER&D) firms, and global capability centres (GCCs), was valued at $316 billion at the end of FY26. While revenue grew by 6.1-6.2% last year, headcount increased by only 3.1%.

Nambiar emphasized that the industry is still experiencing growth, despite the divergence, and the bad news is the divergence itself, while the good news is the continued growth in employee count.

Nambiar cautioned against attributing the entire gap solely to AI, attributing some of it to increased operational efficiency and the elimination of redundancies within organizations. He also acknowledged that campus hiring has become weaker, with large IT and BPM companies reducing campus hiring over the past three years. The industry anticipates a continued lack of meaningful hiring in campus recruitment until the transition towards AI is complete, which could take one to three years.

The most significant challenge lies within the middle tier of organizations in both BPM and IT sectors. Meanwhile, Nambiar expects campus hiring to pick up once companies complete their transition and start deploying AI across their operations. He emphasized that implementing AI into business processes and customer operations will necessitate a substantial increase in software, technology services, and operational support to fully realize its potential.

The BPM industry also faces pressure from its largest market, the United States, as the FCC drafts rules for offshore call centers, including requiring companies to disclose when calls are handled outside the US, providing customers the option to request a US-based agent, and capping the proportion of calls managed offshore. Nasscom has been requested to comment on these FCC proposals, which Nambiar asserts as a necessary protectionist measure.

Despite the looming challenges, Nambiar remains optimistic, asserting that AI is a tailwind rather than a headwind for the industry, as it will drive the need for more software, technology services, and operational support. However, workers will need to reskill as AI takes over repetitive tasks, emphasizing the importance of individual responsibility for career development in the face of industry changes.