Indian IT sector to grow 5.1 pc in FY25, as generative AI continues disrupting business models

The Indian IT industry is projected to grow 5.1 per cent in FY25, reaching $282.6 billion in revenues, according to industry body Nasscom. The sector is expected to surpass $300 billion by FY26, marking a 6 per cent increase from FY25 levels, Nasscom President Rajesh Nambiar said at the Nasscom Technology Leadership Forum.

"This is a good outcome broadly given everything happening around us," Nambiar stated, referring to the sector’s resilience amid global economic challenges.

The tech industry added 126,000 jobs in FY25, bringing the total workforce to 5.8 million, according to Nasscom projections. Traditional IT services revenues are expected to grow 4.3 per cent to $137.1 billion, while the business process outsourcing (BPO) segment is set to rise 4.7 per cent to $54.6 billion. Engineering research and development (ER&D) companies led the growth at 7 per cent, generating $55.6 billion in revenues.

Domestic IT revenues are projected to rise 7 per cent to $58.2 billion, outpacing export revenue growth of 4.6 per cent, which is expected to reach $224.4 billion. Export revenues are evenly split between global multinationals and Indian IT firms, Nambiar added.

HCLTech CEO C Vijayakumar underscored the disruptive impact of generative AI on traditional IT business models, urging Indian IT firms to rethink their strategies.

"The changes AI is bringing are very different from earlier trends like cloud and digitisation. We need to be proactive in redefining our revenues and creating new businesses," Vijayakumar said at the forum.

Generative AI, which can autonomously write software code and optimise operational processes, is expected to significantly improve efficiency. Vijayakumar cited an example of a $1 billion, five-year digital transformation project at a financial services firm that could be completed in three-and-a-half years with AI-driven advancements.

Vijayakumar also stressed the need for India to develop its own large language models (LLMs) to reduce reliance on foreign AI systems and mitigate geopolitical risks.

 "We should not assume that these language models will remain open-source. They will become strategic assets in global geopolitics, and countries may impose restrictions on their usage across borders," he cautioned. He urged India to invest in cost-effective AI training infrastructure to ensure long-term competitiveness.

Infosys CEO Salil Parekh echoed the need for the industry to stay agile in the face of rapid technological changes.

"We have to be paranoid, non-complacent. That’s the only way we can keep pace with industry shifts," Parekh emphasised.

With AI reshaping the technology landscape, Indian IT firms are now navigating a crucial transformation, balancing revenue growth with the urgent need for innovation.