From India Dispatch, December 26:
The AI Revolution Needs Plumbers After All
For the last two years, generative AI was going to kill Indian IT. The argument seemed almost self-evident — if machines can write code, a $250 billion industry built on getting humans to write it cheaper has nowhere left to go. Investors acted accordingly, and the sector has since underperformed the broader market by 30% or more.
The industry has spent this year pushing back. It cut margins, restructured workforces, built platforms, and told clients that AI has not transformed their enterprises because their enterprises are a 30-year accumulation of SAP, Oracle, Workday and middleware that was never designed to talk to anything. And finally, Indian IT is who you call when systems need to talk to each other.
Despite all the hype, generative AI is moving slowly. Less than 15% of organizations are meaningfully deploying the new technology at their firms, according to investment bank UBS. And the narrative about the Indian IT dying is beginning to recede. Investment group CLSA titled a note this month, “Discussion moving beyond AI,” a sign that the existential panic has subsided enough for analysts to return to debating deal pipelines and vertical demand.
Enterprise AI has underwhelmed, though of course not from lack of enthusiasm or capital. Industry players say the tech remains inadequate for regulated industries where someone has to sign off on the output. They cite “workslop,” weak governance and high error rate as reasons the gap between AI as boardroom theatre and AI as functioning software remains so wide.
In the meantime, the Indian IT companies are reporting gains from the same force that was supposed to disrupt them.
***omitted: financials for Tata Consultancy, Wipro and Infosys***
Infosys now calls AI-led volume opportunities a bigger tailwind than the deflation threat, a reversal from 2024, and orderbooks held steady in the third quarter even as pricing pressure filtered through renewals. Infosys expects its own orderbook to grow more than 50% this quarter, anchored by an NHS deal worth $1.6 billion over 15 years.
The AI capex cycle has been concentrated among a handful of hyperscalers and labs, while the Fortune 500 is still figuring out what to do with what they have bought. Indian IT is betting that figuring out what to do is billable work. Channel checks suggest a two-to-three year window of preparatory work – data cleanup, cloud migration, system integration – before enterprise-wide AI becomes feasible, and that window is where Indian IT plans to earn its keep.
The IT industry has always been reactive to new technology, late to consulting and early-stage advisory but quick to capture implementation spend once the experiments end and the plumbing needs building. The firms believe AI will follow the same arc: a hype phase they mostly miss, followed by a deployment phase where scale, client relationships and tolerance for unglamorous work become valuable again.
TCS, which cut its headcount by 2%, is spending on the “less fashionable” layers – a 1GW data-centre network in India, an indigenous telecom stack, a sovereign cloud – alongside platforms called WisdomNext and MasterCraft. It acquired Coastal Cloud, a Salesforce advisory firm, for capability it did not want to build from scratch....
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