NEW DELHI, Oct 15: At a buzzing startup office in Bengaluru, developers are busy perfecting AI-powered chatbots designed to communicate with customers just like humans. The company behind these innovations, LimeChat, has an ambitious goal: to make customer service jobs nearly obsolete. According to the company, its generative AI agents can reduce the number of staff needed to handle 10,000 customer queries per month by up to 80%.

"Once you hire a LimeChat agent, you never have to hire again," said Nikhil Gupta, the 28-year-old co-founder of LimeChat, in an interview with Reuters.

India, long known as the world’s outsourcing hub due to its affordable labor and proficiency in English, now faces a new challenge. Artificial intelligence is rapidly replacing jobs traditionally performed by human workers, such as those in technical support, customer care, and data management. This shift is driving a rush to adapt, as businesses seek to reduce costs and scale operations, even though many consumers still prefer interacting with humans.

The investigation into the disruptions transforming India’s $283 billion IT sector reveals how AI startups are capitalizing on this wave of automation. Interviews with 30 industry executives, recruiters, workers, and government officials—along with visits to two AI startups—show how India is embracing this change. While the country is betting that AI will create new opportunities for those displaced, the speed of change is raising concerns about its social and economic impact.

India’s approach to AI-driven disruption could serve as a model for other developing economies, or it could become a cautionary tale. Global research firm Grand View Research projects that the conversational AI market will grow at a rate of 24% annually, reaching $41 billion by 2030. With IT contributing 7.5% of India’s GDP, the country is positioning itself as a key player in this emerging market. Prime Minister Narendra Modi has expressed confidence that AI won’t eliminate work, but rather change its nature, creating new types of jobs. However, not everyone shares his optimism.

Santosh Mehrotra, a former government official and visiting professor at the University of Bath, criticized the Indian government for failing to develop a comprehensive strategy to address the effects of AI on India’s young workforce. "There’s no game plan," he said.

India’s business process management sector, which employs 1.65 million workers in call centers, payroll processing, and data handling, is already seeing the effects of increased automation. Despite rising demand for AI coordinators and process analysts, hiring in the sector has slowed significantly. According to staffing firm TeamLease Digital, net headcount growth in business process management has dropped from 130,000 workers in 2022-2023 to fewer than 17,000 in the last two years.

Interviews with workers reveal the increasing uncertainty brought about by AI integration. Megha S., a 32-year-old from Bengaluru, was earning $10,000 annually at a software firm before being laid off last month. The company had adopted AI tools to assess the quality of sales calls, and Megha was the first to be replaced by AI. “I’ve not told my parents,” she confided.

Sumita Dawra, a former labor ministry official who oversaw the government’s task force on AI’s workforce impact, acknowledged the productivity gains AI could bring but emphasized the need for stronger social security measures for displaced workers. A senior Indian official, however, told Reuters that the government believes AI’s overall impact on employment will be minimal. India’s IT and labor ministries, as well as Modi’s office, did not respond to requests for comment.

Compounding the challenges facing India’s IT sector are external factors like U.S. tariffs, proposed taxes on foreign outsourcing, and restrictions on H-1B visas, which are critical for Indian tech firms that rely on skilled workers from abroad. According to investment bank Jefferies, India’s call centers could see a 50% revenue drop from AI adoption in the next five years, while other back-office functions may experience a 35% loss. This poses a serious threat to jobs in India, which currently dominates the global outsourcing market, accounting for 52% of it.

Pramod Bhasin, founder of IT services firm Genpact, sees an opportunity for India to transition from a "back office" to the world’s "AI factory." India could capitalize on the growing demand for AI engineers and automation deployment, he suggests.

LimeChat, one of the startups leading the charge, is already seeing impressive results. Gupta revealed that LimeChat’s AI agents have automated 5,000 jobs across India and plan to automate 90-95% of these tasks within the next year. For a service fee equivalent to $1,130 (about 100,000 rupees), clients can replace 15 customer service agents with LimeChat’s AI bots, which handle 70% of customer complaints.

The company’s rapid growth is evident in its revenue, which surged from $79,000 in 2022 to $1.5 million in 2024. LimeChat has also partnered with Microsoft’s Azure language models to enhance its offerings. One of LimeChat’s clients, Kapiva, an Indian Ayurvedic brand, uses the chatbot to interact with customers via WhatsApp. Consumers can ask for tailored diet plans or product recommendations, and the bot responds with product links and personalized advice.

LimeChat competes with other AI companies like Haptik, which was acquired by Reliance Industries in 2019. Haptik’s AI agents promise to cut support costs by 30%. The startup's revenue has grown from less than $1 million in 2020 to nearly $18 million in 2023.

For brands like Mamaearth, a popular Indian personal-care brand, AI chatbots provide a scalable solution to customer support challenges. Mamaearth’s chatbot can handle everything from basic inquiries like order tracking to more complex tasks like recommending products for pregnant customers and assisting irate clients.

However, AI’s integration isn’t without its challenges. Despite the speed and efficiency of AI bots, they aren’t always flawless. When asked for proof of a claim about its products, the bot used by LimeChat’s client Knya failed to provide an answer.

Surveys also show that many customers still prefer human interactions. An August 2024 EY survey found that while 62% of Indian consumers were influenced by AI recommendations when making purchases, 78% still preferred platforms that offered human support.

LimeChat’s Gupta, however, believes that with proper training, AI agents will eventually resolve queries more efficiently than humans. "You need a very small number of people to just handle negative experiences," he said.

The rise of AI is reshaping India’s labor market, particularly in its IT and outsourcing sectors. Cities like Bengaluru have long been hubs for tech firms and outsourcing operations, but this shift to AI could alter the landscape in profound ways. In neighborhoods like Ameerpet in Hyderabad, once known for IT training programs, local centers are now focusing heavily on AI courses. Quality Thought, one of these centers, has begun offering a nine-month course in AI data science for $1,360—double the cost of a traditional web development program.

Venture capitalist Vinod Khosla, co-founder of Sun Microsystems, offered a grim prediction during a recent discussion about India’s future in tech. “All IT services will be replaced in the next five years,” he said. “It’s going to be pretty chaotic.”

As India races to harness AI's potential, it faces an uncertain future. The country’s ability to balance innovation with its impact on workers will determine whether its approach to AI can serve as a model for other economies—or a cautionary tale.