AI could erode India’s IT arbitrage model, pressure rupee: Research

A recent state of affairs evaluation by US macro analysts at Citrini Analysis has sounded a notice of warning over the long-term sturdiness of India’s IT export-led progress mannequin, warning that speedy advances in synthetic intelligence (AI) might, over time, undermine the nation’s labour-cost benefit and pressure the rupee.

The report sketches a hypothetical 2028 stress state of affairs by which AI coding brokers sharply compress international software program improvement prices, stablecoins constructed on networks reminiscent of Solana and Ethereum disrupt conventional fee rails, and the S&P 500 plunges 38 per cent from its peak. Whereas not a base-case forecast, the train is designed to spotlight structural vulnerabilities in economies reliant on companies exports — with India a key instance.

“Indian builders value a fraction of their American counterparts. However the marginal value of an AI coding agent has collapsed to, primarily, the price of electrical energy,” the report stated, arguing that wage arbitrage — the bedrock of India’s software program exports for over 20 years — might erode way more rapidly than markets presently anticipate.

In its stress case, massive Indian IT corporations reminiscent of Tata Consultancy Companies, Infosys and Wipro see contract cancellations speed up by way of 2027. The rupee tumbles 18 per cent towards the greenback inside 4 months because the companies surplus — a key pillar of India’s exterior steadiness — evaporates, prompting preliminary discussions with the Worldwide Financial Fund by early 2028.

Companies engine holds agency — for now

For now, nonetheless, official knowledge paint an image of resilience fairly than retreat.

The
Financial Survey 2025–26 notes that companies exports progress greater than doubled to 14 per cent throughout FY23–FY25, in contrast with 7.6 per cent within the pre-pandemic FY16–FY20 interval. The sector now contributes greater than half of Gross Worth Added (GVA), underlining its centrality to India’s progress story.

In FY26, companies expanded 9.1 per cent, in accordance with the primary advance estimates, appearing as the first driver of general GVA progress. India has additionally climbed to change into the world’s seventh-largest exporter of companies, with its share in international companies commerce rising from 2 per cent in 2005 to 4.3 per cent in 2024.

In H1 FY26, companies exports grew at round 10 per cent. Software program companies — which account for greater than 40 per cent of complete companies exports — posted common progress of 13.5 per cent throughout FY23–FY25, a marked acceleration from 4.7 per cent in FY16–FY20.

Overseas direct funding developments additional reinforce the sector’s weight. Companies accounted for 80.2 per cent of complete FDI inflows throughout FY23–FY25, up from 77.7 per cent within the pre-pandemic interval, with info and communication companies {and professional} companies drawing the most important shares.

The IT-ITeS trade stays substantial regardless of a moderation in progress. Nasscom estimates trade revenues at $283 billion in FY25 (together with {hardware}), reflecting 5.1 per cent year-on-year progress — an enchancment from 3.9 per cent in FY24.

Whereas Citrini’s state of affairs envisages accelerating contract cancellations and forex stress, the present macro backdrop stays steady in early 2026. Companies exports have cushioned the influence of subdued international items commerce, although companies commerce progress moderated to eight per cent throughout April–November FY26 amid international coverage uncertainty.

Structural query, not imminent disaster

Citrini Analysis’s train stops in need of predicting an imminent shock. As an alternative, it poses a deeper structural query: what occurs if AI meaningfully compresses the marginal value of software program improvement globally?

India’s IT mannequin has traditionally been anchored in labour value differentials and scale. If AI brokers scale back coding and upkeep prices towards near-zero marginal expense, pricing energy, billing charges and employment elasticity might come below stress. Provided that companies exports finance a big share of India’s persistent merchandise commerce deficit, any sustained erosion would carry forex implications.

For now, the info counsel continued momentum. Companies stay a high-growth, comparatively low-volatility anchor in an unsure international surroundings.