India IT-BPM sector seeks labor clarity, AI push in 2026 budget
MUMBAI, INDIA — As India gears up for Union Budget 2026, the country’s information technology and business process management (IT-BPM) industry is pressing the government for clearer labor regulations and stronger support for artificial intelligence (AI) adoption, citing rising operational costs and a growing need for skilled talent.
A Money Control report notes that the industry is pointing out that the budget is a key opportunity to maintain India’s competitiveness in global digital services.
India’s labor code ambiguity impacts profitability
One of the most urgent concerns for IT companies is the ambiguity surrounding India’s new labor codes. Executives warn that unclear guidelines are directly affecting profitability.
In the latest quarterly earnings, top IT firms faced an estimated ₹5,000 crore (US$600 million) in additional costs due to revised wage definitions impacting gratuity and provident fund payouts.
“For all the IT services companies, clearly, there was a significant provision that happened because of the labor code implications. I think it hits profitability. We’re looking for a little bit more clarity on the labor code requirements. But otherwise, I feel the government has been very supportive of the industry,” said Mohit Joshi, CEO and MD of Tech Mahindra, speaking to Moneycontrol.
The call for clarity indicates a broader struggle by the sector to remove friction points that are inhibiting capital flows and profit margins, such as the overlapping compliance rules and tax refund delays.
Budget 2026: Bridging the AI skills gap
Beyond regulatory clarity, IT-BPM leaders are advocating for scaled AI adoption and workforce readiness.
“Policy measures that encourage adoption of AI, automation, and Generative AI across IT and BPM operations can significantly enhance productivity, efficiency, and service quality,” Venkatraman Narayanan, managing director of Happiest Minds Technologies, told Moneycontrol.
The skills shortage continues to serve as a major hindrance that prevents organizations from developing their business operations. This includes entry-level readiness, mid-career reskilling programs, and structured apprenticeship programs.
Kapil Joshi, CEO of Quess Corp, highlighted the need for career-transition frameworks for mid-career professionals, while Achal Khanna, CEO of SHRM APAC & MENA, emphasized that budget support for internships and apprenticeships could shorten time-to-productivity for new hires.
The sector is pursuing ecosystem-level development, which includes new technologies, cloud services, and extended digital public infrastructure for healthcare and logistics.
“The government could also build on the success of Digital Public Infrastructure…unlocking productivity and efficiency gains,” Nitin Chandalia of BCG added.
India’s development of its AI and digital services infrastructure brings advantages to the outsourcing sector through decreased operational barriers and faster implementation of technology-based business process management systems.
India can establish itself as a global hub for high-value digital work through implementing clear labor regulations that support AI development, employee training programs, and international business operations.
