Indian IT's cost-arbitrage model won't survive AI era, warns Uniphore CEO

The traditional cost-arbitrage model that helped build India's multi-billion-dollar IT services industry is unlikely to remain sustainable in the age of artificial intelligence, according to Umesh Sachdev, CEO and Co-Founder of Uniphore.

Speaking exclusively to CNBC-TV18, Sachdev said Indian IT services

firms face a fundamental shift as AI agents increasingly take over work that was previously performed by large offshore teams. He cautioned that companies which fail to adapt quickly could struggle to survive the transition.

"I think if there's any leader of one of these services companies who isn't taking this seriously, that's a mistake. The warning signs are very clear," Sachdev said.

"The cost-arbitrage business model isn't going to be a long-term sustainable business model."

His comments come as enterprises across the world accelerate investments in AI, with companies increasingly seeking automation, efficiency and outcome-based pricing rather than traditional labour-intensive service models.

Gajen Kandiah, CEO of Rackspace Technology and a former executive in the IT services industry, echoed those concerns, warning that service providers could face significant disruption in the near term.

"I think services companies are going to feel the pain — quite a bit of pain — before things turn around because this is fundamentally changing," Kandiah said.

Explaining the scale of the shift, Kandiah said AI agents could dramatically reduce the need for large offshore workforces.

"If you had 100 people doing work today, and let's say 90 of them were in India, and now the 10 people I have onshore with agents can do the work of those 90 people, what am I going to do?" he said.

The executives argued that AI is changing not only how work is performed but also how technology services are priced and delivered. According to Sachdev, businesses are increasingly moving away from charging customers based on the number of employees or hours worked and towards outcome-based commercial models powered by AI.

"What this allows companies to do is not price on a per-seat, per-hour, per-human basis, but on a per-outcome basis," he said.

Despite the disruption, Sachdev believes Indian IT firms can emerge stronger if they successfully reinvent themselves. He said major services companies are already beginning to shift away from traditional reselling and manpower-based engagements towards building proprietary AI capabilities.

According to him, the next phase will involve companies converting decades of industry expertise into specialised AI models that can deliver business outcomes more efficiently.

"Take your expertise and convert it into a proprietary small language model," Sachdev said, describing how services firms can monetise their domain knowledge in sectors such as financial services, insurance and life sciences.

He added that successful firms could ultimately benefit from higher growth rates and software-like profit margins.

However, the transition will not be easy.

"This is not a trivial transition. It needs a CEO who's committed, fully committed to this direction and moving the company fast," Sachdev said.

"There are many that may not make it, and we should expect that."

While both executives acknowledged the likelihood of short-term job displacement, they argued that new opportunities would emerge around AI deployment, model training and context engineering as enterprises increasingly adopt agentic AI systems.

For India's IT services sector, they said, the challenge is no longer whether AI will change the industry, but how quickly companies can transform themselves before the market moves ahead of them.