Vikas Vij@TheClubJunto
IT Industry's First Lifeline Against AI
Fortune Headline: AI Proving Costlier Than Human Employees
Vishal Sikka: Token costs are becoming a real issue
Microsoft: Canceling Claude; moving engineers back to Copilot
Indian IT: AI Hybrid + ₹ @ 100 can change arithmetic
INSIGHTS:
First Cracks in the AI Story
a. In recent months, Anthropic’s AI agentic tool Claude sparked a massive selloff in SaaS and IT services stocks, erasing hundreds of billions in market value.
b. On May 22, 2026, Fortune magazine has published an article which says that recent corporate reports are “exposing AI’s real cost problem.”
c. Microsoft has begun cancelling most of its Claude Code licenses, moving thousands of its developers, project managers, and designers back to using its in-house GitHub Copilot CLI.
d. Microsoft isn’t alone. Uber’s CTO said the firm had already burnt through its entire 2026 AI coding budget in just 4 months (Jan to Apr). Meta, Amazon and other tech firms pushing for max use of AI tokens too face the same dilemma.
e. Fortune article says: “These reports may throw cold water on the bets tech industry has placed on AI. While some cling to the promise of an “AI revolution,” the cost of adoption is proving a stubborn bottleneck.”
f. Highlight Line for IT Services: “The economics of replacing or augmenting human labor with AI may be more complicated than some early forecasts originally implied.”
g. Earlier today, Dr. Vishal Sikka posted the Fortune article on his X account with these comments: “Token costs are becoming a real issue. In the weeks/months ahead, I expect more scrutiny of AI usage.”
h. Goldman Sachs recently forecasted that agentic AI token consumption could increase 24x by 2030. So, even if the cost-per-token will fall sharply, aggregate costs will rise.
g. AI compute, inference, energy, and tooling costs (including AI native expert costs) are not going to zero. Just as broadband internet or electricity never became free despite massive improvements in efficiency and scale.
h. Jevons Paradox: As more AI use cases emerge for individuals and businesses, the increased token consumption will outpace falling unit costs.
i. Citing Pew Research polls, Harvard’s Gazette reported last month that public opposition is rising over the large water & electricity demands that data centers impose on communities, while creating almost no new jobs. (1.4 GW Data Center = electricity for a million US homes.)
Indian IT Cost Modeling
Here’s a rough back-of-the-envelope calculation:
The Human Cost
The current cost of a mid-level Indian IT developer is ₹950 per hour (including salary plus fixed & operational overheads).
At the exchange rate of ₹95, this engineer costs the company $10 per hour.
If the exchange rate is ₹100, the cost goes down to $9.50 per hour.
The AI Multiplier
Now train this IT developer on enterprise AI tools. This won’t replace the developer, but it will make him twice as efficient (2x multiplier). So, he can now finish 2 hours worth of work in 1 hour.
Therefore, cost per hour drops to $4.75 (half of $9.50)
Cost of AI Tools
Indian IT companies have to rent AI models from the US. Assume that the cost of AI tooling is $6.25 per hour for every IT engineer using the system.
Total Cost of Operation
$4.75 + $6.25 = $11 per hour
This is the “Indian AI-Augmented Model” @ $11 per hour
Who Wins the Global Price War?
100% AI Model in the US (with high AI native expert salaries, AI token costs, data center power costs, and local overheads & taxes) may cost $15 to $20 per hour.
An India IT firm can deliver the same high-tech AI-driven work at an internal cost of $11 per hour.
Weak ₹ as a Tactical Weapon
With every ₹1 depreciation against the US dollar, an Indian IT export firm’s operating margin expands by 30 to 50 bps (0.3 to 0.5%).
The way China intentionally undervalued its currency for years to dominate world trade, India must also learn to weaponize the rupee to its advantage.
If cracks indeed begin to emerge in AI frontier model cost economics, it will be time for India to go on the offensive and fight the IT & GCC service exports battle on the front foot.
@arabicatrader
