Rajan Dismisses AI Doomsday Scenario for India’s $224 Billion IT Sector
Former RBI chief calls disruption real but manageable, pushes back on Citrini Research forecast warning of economic collapse by 2028.
Former Reserve Bank of India Governor Raghuram Rajan said artificial intelligence will disrupt India’s services sector but rejected alarming predictions of a doomsday scenario, positioning himself against recent reports warning of catastrophic job losses in the country’s $224 billion IT export industry.
Speaking to Bloomberg, Rajan acknowledged AI would be “disruptive for India’s services sector, particularly the software firms,” but characterized warnings of total collapse as exaggerated. The intervention comes as Indian IT stocks have shed over $100 billion in market value over the past year, with the Nifty IT index hitting a 30-month low this week after wiping out nearly ₹10,000 crore in foreign investment in recent days, according to WION News.
Rajan’s comments directly address the Citrini Research report that has circulated widely this week, which argued the firm “overlooks adaptation, exaggerates disruption speed, and ignores India’s strengths in engineering talent and services.” The Citrini memo, titled “The 2028 Global Intelligence Crisis,” presents a hypothetical scenario in which India’s $200+ billion services surplus “evaporates” by 2027, causing the rupee to crash 18% and forcing bailout talks with the IMF, as reported by WION News.
The Automation Paradox
Rajan has consistently argued AI will reshape work rather than eliminate it wholesale. In a February 2025 interview with the Richmond Fed, he noted “AI can help increase the productivity of software developers significantly” while acknowledging “it certainly will create some job displacement.” He rejected the premise that AI poses unique risks to services: “I don’t think AI is a reason to be worried about services in particular.”
The tension reflects India’s precarious position. India’s services sector contributes approximately 55% of gross value added, translating to roughly $2.3 trillion in national output, according to China Briefing. The United States dominates as the top market with $103.2 billion in exports, followed by Europe at $58.8 billion, data from the India Brand Equity Foundation shows. ICT service exports represented 48.17% of India’s total service exports in 2023, according to Trading Economics, making the sector a critical foreign exchange anchor.
India’s IT industry grew 12.48% in FY25 to reach $224.4 billion in exports, a sharp acceleration from 2.83% growth the prior year. The sector emerged in the 1990s as India leveraged English proficiency and lower labor costs to become the world’s back office. Major firms like Tata Consultancy Services, Infosys, and Wipro employ over 500,000 workers each.
Sonal Varma, chief economist at Nomura, told CNBC that “AI adoption is a major challenge for India. Entry level routine jobs are being displaced, and mid-level jobs are transforming,” adding this “creates the challenge for job creation for India, since the country needs to create about 8 million jobs annually.” Tata Consultancy Services announced last month it would cut more than 12,000 jobs from middle and senior management—2% of its global workforce, the report noted.
The Structural Vulnerability
The Citrini scenario hinges on a specific mechanism: India’s services model was built on providing developers at a fraction of Western wages, but with “agentic AI,” the marginal cost of a coding agent has collapsed to the cost of electricity, according to WION News. Indian IT giants TCS, Infosys, and Wipro have reportedly reduced their workforce by over 60,000 employees as part of strategic realignment, research published in a Taylor & Francis journal found.
A forecast cited by the Indian Institute for Strategic and Public Policy Research projects AI automation could displace 68% of white-collar jobs in India within five years, particularly in IT, finance, and customer services. An IIM-Ahmedabad study found that while 55% of white-collar workers have adopted AI and 48% received training, 68% fear their roles could be automated within five years, the journal article reported.
Yet countervailing forces exist. NASSCOM recently underlined that upgrading global legacy code is a $1.6 trillion opportunity, and AI “does not kill that work; it simply makes it faster”, WION News reported. Rajan told Bloomberg in February 2025 that “Indian firms are focusing on the application of AI, and how to apply big AI models to the nature of work, as that’s an area with a lot of opportunities.”
“AI can help increase the productivity of software developers significantly. It certainly will create some job displacement. But it will also create new jobs.”
— Raghuram Rajan, Former RBI Governor
Market Panic Meets Policy Vacuum
The NSE Nifty IT Index tumbled 4.7% to its lowest level since August 2023 this week, as Citrini outlined a scenario in which firms would see “an acceleration in contract cancellations through 2027,” Bloomberg Markets reported. The selloff didn’t begin with Citrini—Nifty IT had already fallen around 21% in February, its worst performance in 23 years, according to Sahi.
India’s urban unemployment rate rose to 7.1% in June from 6.5% in April, while youth unemployment among those aged 15 to 29 spiked to nearly 19% from 17.2%, CNBC reported, citing government statistics. The Economic Survey 2025-26 noted that “early evidence” from advanced economies had “begun to temper” extreme job loss predictions, emphasizing that India’s ICT-BPM market generates 5.4 million jobs and contributes 7.5% of GDP, according to The Federal.
Rajan’s long-standing prescription centers on human capital. He has argued “India’s biggest asset is its human capital,” emphasizing the need for “stronger, more capable, better human capital, especially in a world where AI and so on are coming in in a big way”, according to the Richmond Fed interview. In his recent book with Rohit Lamba, he contends “the future is in service, and India, which has demonstrated excellence in sectors like software and consulting, should aggressively pursue the service route”, as discussed on the University of Chicago’s Capitalisn’t podcast.
- India’s IT exports surged 12.48% in FY25 to $224.4 billion, yet major firms cut 60,000+ jobs
- Services contribute 55% of GDP but employ only 30% of the workforce, creating productivity-employment gap
- 68% of white-collar workers fear automation within five years, but legacy code modernization offers $1.6 trillion opportunity
- U.S. accounts for $103.2 billion in exports—54% of total—concentrating geographic risk
What to Watch
Three indicators will determine whether Rajan’s measured optimism or Citrini’s catastrophism proves closer to reality. First, contract renewal rates at India’s top five IT firms through Q4 2026—Citrini specifically predicted procurement teams would demand 30% renewal discounts, per Sahi. Second, the composition of new hires: non-metro cities like Udaipur and Vizag recorded over 50% IT hiring growth in H1 2025, significantly higher than Bengaluru’s 12–15%, reflecting a shift as tier-II hubs attract AI, cloud, and cybersecurity demand, the India Brand Equity Foundation notes. Third, India’s services trade balance with the United States—any sustained contraction would validate the core Citrini mechanism.
Policy responses remain uncertain, with analysts at the Observer Research Foundation recommending “a multidimensional strategy focused on workforce transition, technological inclusivity, and evidence-based policymaking.” As one analysis noted, “the timeline disconnect between social media optimism and expert projections is stark”—infrastructure investment is coming, but “India’s AI dividend will be earned through sustained effort in education, training, and workforce policy, not delivered automatically”, according to Diplotic. The window for structured adaptation exists, but it’s narrowing faster than India’s traditional policy consensus can move.