AI Slows Pay Growth in India's IT Sector

India's IT services sector expects employee compensation to slow in 2026, a notable shift driven by global economic uncertainty and AI's growing influence. Deloitte's analysis shows the tech sector is vulnerable to international market shifts and rapid AI adoption. This leads to adjusted compensation budgets and slower growth for IT services. Projections indicate the sector's expansion will ease from about 7.6% in 2025 to 6.9% in 2026. This makes it the slowest-growing segment among industries surveyed. Consequently, IT firms are cutting growth and compensation forecasts by up to 0.7 percentage points from last year's outlook.

Other Sectors Offer Stronger Salary Hikes

In contrast to the IT slowdown, several other key Indian sectors are expected to see stronger salary increases next year. The pharmaceutical industry is projected to lead with hikes around 10.1% (up from 9.8% in 2025). Life sciences anticipates increments near 9.9%. Manufacturing firms are forecast to offer average hikes of 9.8%, with automotive OEMs possibly reaching 10.3%. The power and renewable energy sector could see substantial raises at 10.4%, and semiconductor firms around 10.1%. Financial services also show resilience, with overall salary growth expected to reach 9.1% in 2026 (from 8.9% in 2025). Non-banking financial companies and asset management firms are projected to offer around 9.5% and 9.4% respectively.

GCCs Outpay Traditional IT Firms

Global Capability Centers (GCCs) continue to offer significantly higher compensation, reportedly 20-25% more than traditional IT services firms. Traditional IT firms typically pay ₹12 lakh to ₹15 lakh annually. While GCC growth is also moderating slightly, from 9% in 2025 to 8.8% in 2026, their higher pay remains a major draw for talent. This gives GCCs a competitive edge in attracting and keeping skilled professionals, a challenge for IT service providers facing cost pressures and AI-driven market changes. Within IT services, many high performers are concentrated in the middle tier, rather than spread widely.

AI Risks Job Losses, Pressure on IT Profits

The projected pay stagnation in IT services, worsened by the rapid shift to AI, poses a significant risk. AI could lead to job losses in automated roles, creating a surplus of mid-tier talent and intense competition for fewer high-skilled jobs. Unlike the steady growth in sectors like pharmaceuticals and energy, IT services depend heavily on global client spending, making them more vulnerable to economic challenges. The reported scarcity of top performers in IT services, alongside a larger middle segment, means companies may struggle to reward exceptional talent, increasing attrition among top staff. This, combined with higher GCC pay, creates a tough environment for traditional IT firms aiming to stay competitive and retain skilled workers. Questions also remain about AI's long-term impact on IT service providers' core business models, potentially reducing traditional income if they don't innovate beyond basic services.