Indian firms can tweak to ride the AI wave

India's labour-intensive IT industry is going through an investor rout amid a global selloff in software stocks over rapid advancements in AI. IT stocks have slumped 12.5% since beginning of the year, after having declined 12.6% last year. The selloff intensified this week after Anthropic released plug-ins for its Claude Cowork agent that affects a broad swathe of business functions outsourced to Indian IT firms. Clients of IT majors TCS, Infosys, HCL and Wipro are expected to integrate Anthropic's Claude into critical coding workflows that have traditionally been performed by large vendor teams in India. Call it a threatening 'AI tariff'.

Impact of AI-led disruption could be widespread in India's technology industry. But hold your horses. The intensity of market reaction may be overdone. Frontline IT companies have been trimming their workforce at a pace that does not signal a breakdown of the outsourcing model just yet. GCCs in India have gone about adjusting payrolls even more gingerly. The pipeline of inward investment in GCCs is widening as more companies eye India for its technical talent. Earlier this month, GoI unveiled a tax framework for the tech industry to encourage investment.

So - breathe out - episodes of AI anxiety should not suggest that India's technology sector faces an existential threat. AI is still in the early stages of adoption by businesses. There are also questions over energy and computing costs of the technology, apart from its reliability as an independent work agent. The Indian IT industry has evolved consistently alongside technology, and market transformations and can manage the AI transition. IT companies here are in the process of reworking their business models to ride the AI wave surfboard-style. India plays a vital role in technology dispersal by bringing down costs. Which will be a significant advantage in the hugely expensive AI race. The smart money will be betting on India sustaining its edge in the export of technology services where its strengths continue to reside.