AI to Unlock India's Next Growth Frontier in Technology Services: Report Enterprise technology spending is expected to remain resilient, but allocations will shift towards AI adoption

India's technology services sector is preparing for a new phase of transformation, with artificial intelligence expected to become the key driver of growth. A new report, Future of Technology Services: Leading with AI, released by Nasscom in partnership with McKinsey & Company, examines how the industry has changed in the past five years and the adjustments required for the next decade.

According to the report, the period from 2020 to 2025 was marked by structural shifts. The COVID-19 pandemic accelerated digital adoption worldwide, while geopolitical developments began reshaping traditional service models. The rapid rise of AI further disrupted delivery methods. Despite these challenges, the Indian technology services sector continued to grow and contributed to digital transformation across global enterprises.

The outlook, however, is more measured. The report projects that industry revenues will expand at a moderate pace of 5–7 per cent over the next five years, with recovery expected between 2027 and 2030. Growth will not be uniform: while some legacy service lines are likely to come under pressure, areas such as data and AI are expected to grow at 12–15 per cent. In the short term, particularly over the next two years, demand for "bankable productivity gains" is expected to intensify, which may lead to tighter budgets and a focus on cost efficiency.

The report identifies several emerging trends. Enterprise technology spending is expected to remain resilient, but allocations will shift towards AI adoption. The expansion of agentic AI could create new opportunities, potentially unlocking USD 300–500 billion in fresh spend pools. The report also anticipates a shift towards hybrid delivery models where humans and AI agents work together.

Commenting on the shift, Rajesh Nambiar, President of Nasscom, said, "The future of technology services will not be defined by choosing between human expertise and AI-driven automation, but by the powerful convergence of the two. Over the next three to five years, we will see an accelerated rise of hybrid teams, reshaping delivery models, productivity benchmarks, and pricing frameworks toward outcome-driven models." He added that India could play a leading role in this transition, but doing so would require large-scale reskilling and cross-skilling of its workforce.

Also, the Global Capability Centres in India will increasingly serve as innovation hubs for multinational companies.

Noshir Kaka, Senior Partner at McKinsey & Company, underlined the opportunities and risks the sector faces. "The global technology services market is entering a phase of both promise and pressure. Agentic AI is opening up significant new growth arenas, providing a unique opportunity for service providers to step up as true transformation partners for enterprises, helping them navigate challenges and scale new possibilities to unlock value. However, it needs a reset of the industry operating model to both counter near term headwinds and build for the AI era," he said.