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Investing.com -- India’s services-led economy faces a pivotal moment as artificial intelligence reshapes global labor markets, according to Jefferies’ latest equity strategy report.
The brokerage warns that while the country’s reliance on services makes it vulnerable to automation, its digital infrastructure, vast talent pool and government initiatives could help it adapt.
Services contribute 64% of India’s gross value addition and employ about 42% of the workforce, Jefferies said.
The sector, which has powered growth since the 1990s, is now exposed as generative AI automates routine tasks from coding to customer service.
“AI-led disruption is already becoming visible in IT services with customers asking for 15-30% lower project costs in anticipation of AI improvement gains at service providers,” the analysts noted.
At the same time, India holds unique advantages. Its working-age population is set to rise from about 980 million in 2024 to 1.07 billion by 2033, representing nearly 70% of the total population.
Roughly 8-9 million people will join the workforce each year. Jefferies highlighted this demographic dividend as a potential buffer, though warned job creation must shift toward higher-value roles.
Digital public infrastructure is another strength. The India Stack has facilitated over 1.4 billion
Aadhaar enrollments, nearly 9.5 billion documents through DigiLocker and about 20 billion monthly UPI transactions, accounting for 85% of India’s digital payments and half of global real-time transactions.
This scale, Jefferies said, gives India “ability to generate digital data at unmatched scale,” a critical resource for training AI models.
Policy support is also central. The government launched the IndiaAI Mission in 2024, pledging $1.2 billion over five years to democratize access to computing, enhance data quality and support startups.
“The AI era is likely to require more active, policy leadership to create an enabling infrastructure for this transformative technology,” Jefferies said.
Subsidized compute access is already being rolled out, with 34,000 GPUs made available at under ₹100 per hour.
Still, hurdles remain. Limited private appetite for deep tech funding and dependence on imported chips constrain India’s ambitions. Electronic goods imports reached $62 billion in FY25, forming 22% of the trade deficit, second only to oil.
Jefferies warned that without domestic capacity for advanced semiconductor nodes, India risks “becoming a raw data provider and missing out on the higher-value stages of the AI value chain.”
For IT services, Jefferies projects muted growth at 1.4% CAGR over FY25-28, with AI-led productivity gains deflating revenues by 20% by FY30.
The brokerage favors mid-sized players such as Coforge and Hexaware, while maintaining underperform ratings on Tech Mahindra and Wipro.
Meanwhile, India’s data center capacity is forecast to grow fivefold to 8GW by 2030, driving $30 billion in capital expenditure and expanding the leasing market to $8 billion.
Telecom operators including Bharti Airtel (NSE:BRTI), Reliance (NSE:RELI) and Adani Enterprises (NSE:ADEL) are expected to capture 35-40% of this capacity.
“India is at a crucial juncture with rising working-age population but high dependence of economy on services when AI threatens to automate many routine cognitive jobs,” Jefferies added.
Rather than chasing U.S. and Chinese levels of AI investment, the brokerage said, India’s path lies in leveraging its digital infrastructure and demographic base to turn disruption into long-term opportunity.