Hello, this is Priyanka Salve, writing to you from Singapore.

Welcome to the latest edition of “Inside India“ — your one-stop destination for stories and developments from the world’s fastest growing large economy.

Over the past two decades, India’s IT sector has been driving a consumption boom that has in many ways anchored the India growth story. But as AI forces IT companies to shift away from volume hiring, it exposes a critical gap that risks hampering economic growth: a lack of quality jobs.

Read on!

Any thoughts on today’s newsletter? Share them with the team.

Few global events have dented India’s fabled growth story.

Even as the conflict in the Middle East disrupts global supply chains, the IMF earlier this month reaffirmed its forecast that India will remain the fastest-growing large economy in 2026.

But last week, global equity research firm Bernstein wrote an open letter to Indian Prime Minister Narendra Modi, warning of a deepening employment crisis in the country, especially as artificial intelligence threatens quality jobs in the information technology sector.

Those jobs with relatively high wages and productivity have had spillover effects across real estate, education, and services, making white-collar employment a key pillar of the country’s economic growth.

For the past two decades, 10 million to 15 million Indians working in IT services and the business process outsourcing industry have anchored the “aspirational middle class—buying homes, taking flights, driving consumption,” Bernstein said. “Gen AI now challenges that template.”

India’s IT sector used to outcompete global peers as the vast talent pool at relatively low cost gave it an edge, experts said. But AI has tilted this equation in favor of tech arbitrage, from labor arbitrage earlier. The lack of quality jobs will stress-test the India growth story, which relies on the demographic dividend and domestic consumption.

“Without job creation, India’s consumption-led economy will struggle to grow, limiting investment demand at a time when the export growth-led model is at risk globally,” Shumita Sharma Deveshwar, chief India economist at GlobalData TS Lombard, told CNBC.

“India has struggled to raise the share of manufacturing in the economy to shift labour from farm to factories,” she said, adding that the AI boom now poses a threat to jobs in both manufacturing and services.

Close to 45% of India’s workforce continues to depend on agriculture, which only contributes 15%–16% of its GDP, according to Bernstein.

In an interview with CNBC-TV18 during the AI Summit earlier this year, Ashwini Vaishnaw, India’s IT minister, acknowledged that disruption to jobs in the tech sector was a “real challenge,” but stressed that the solution was in “upskilling and reskilling the workforce.” The Indian government expects AI to reinvent the country’s IT sector.

“Not all jobs are at risk of being replaced by AI,” said Alexandra Hermann Prasad, lead…

Hello, this is Priyanka Salve, writing to you from Singapore.

Welcome to the latest edition of “Inside India“ — your one-stop destination for stories and developments from the world’s fastest growing large economy.

Indian consumers’ desire to shift away from gasoline-based cars should have been Tesla and BYD’s moment to shine in the world’s third-largest auto market. But legacy carmakers that have dominated the Indian market for decades have an ace up their sleeve — hybrid cars.

Enjoy!

Any thoughts on today’s newsletter? Share them with the team.

The demand for electric vehicles is surging worldwide, but Indian consumers are choosing a different ride — hybrid cars that don’t need external charging.

Hybrid cars are expected to reach 10% of total car sales in India in the financial year ending March 2027, while EVs are expected to account for 5%, according to a report by Indian research firm Care Ratings.

Cost-conscious consumers who were previously buying diesel vehicles have started shifting to hybrids, Puneet Gupta, director at S&P Global Mobility with a focus on the Indian market, told CNBC.

Hybrid vehicle sales have risen nearly fourfold in the world’s third-largest auto market to 362,866 units in the financial year ending March 2026, from 98,010 units in the financial year ending March 2020, according to Care Ratings.

Meanwhile, annual sales of electric vehicles were 131,865 units in the year to March 2026, the report, based on the Indian government’s vehicle registration data, showed.

“It’s clear that hybrid cars are gaining traction [in India] faster than EVs in the passenger car segment,” Diwakar Murugan, senior automotives analyst at Omdia, said in an email to CNBC. He added it was “remarkable” that hybrids are punching above their weight, having achieved strong growth with just eight models in the market so far, compared to more than 40 EV models.

The shift away from internal combustion engine, or ICE, vehicles should have ushered global EV companies like Tesla and BYD into India, but it turns out that Japanese manufacturers, who already dominate India’s auto space, are set to deepen their grip on the market by offering hybrid cars instead of pure EVs.

Tesla has sold fewer than 400 cars while BYD has sold less than 7,000 in India since 2025, according to government data.

Even in the EV space, automakers Mahindra & Mahindra and Tata Motors, which primarily sell ICE cars, are the leading players. That’s a stark contrast to BYD and Tesla’s global dominance: in 2025, BYD became the world’s top EV seller with 2.26 million units, while Tesla sold 1.64 million.

In hybrids, Japan’s Toyota and Maruti Suzuki — the Indian subsidiary of Suzuki Motor — are the top manufacturers in India, with popular models including the Toyota Innova Hycross and Maruti Grand Vitara, said Arun Agarwal, vice president of fundamental research at Indian brokerage Kotak Securities.

These companies already dominate the broader…

This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse. Subscribe here.

New Delhi-based tech startup founder Ashita Gupta loves her cars. With prospects of luxury European cars becoming cheaper, Gupta, who drives an Audi A6, is considering buying another high-end vehicle.

It “doesn’t make sense” to spend so much money on a second car, but if an Audi R8 or Audi RS4 were to become “affordable” it would be worth purchasing, she says.

On Tuesday, India and the European Union announced the “mother of all deals,” that includes New Delhi slashing import duty on European cars gradually to 10% from 70%-110% at present. This would apply to a quota of 250,000 vehicles per year, and on cars priced above 15,000 euros ($17,952).

India has long shielded its auto market, the world’s third largest, by using prohibitive levels of tariffs on imports to safeguard domestic auto companies, while pushing global firms to build local manufacturing plants.

U.S. President Donald Trump, in fact, has often criticized India for protecting its local auto industry from imports and has demanded lower tariffs on American car companies, calling them “very unfair.” 

Now, Brussels has edged out Washington in getting New Delhi to drop its hard stance on auto tariffs, securing a lucrative deal for European auto majors.

“EU brands now have a premium pass to the world’s third largest car market, while US companies are currently facing a huge levy,” Diwaker Murugan, auto analyst at Omdia, told CNBC. Omdia estimates India’s car market to touch 6 million by 2030, fueled by a young population with higher disposable incomes.

India and the European Union have finalized a trade deal that would remove or reduce tariffs on more than 90% of goods traded between the two.

The free trade agreement would see India reduce tariffs on European automobile and agricultural products, while the EU would do the same for Indian textiles, leather, marine products and gems and jewelry.

Many of these Indian exports have been affected by the U.S. imposing 50% tariffs.

“We have created a free trade zone of 2 billion people, with both sides set to gain economically,” said European Commission President Ursula von der Leyen. She added that the deal sends “a signal to the world that rules-based cooperation still delivers great outcomes”.

The “historic” deal comes at a time when New Delhi is facing the brunt of U.S. tariffs and is looking at alternative markets for its exports. The EU’s long-standing trade ties with the U.S., its largest trading partner, have been tested amid President Donald Trump’s push to annex Greenland.

India’s Commerce and Industry Minister Piyush Goyal said in a press conference on Tuesday that he expected the deal would come into force in 2026.

India is the EU’s ninth-largest trading partner, accounting for 2.4% of the bloc’s total trade in goods in 2024, far behind major partners like the U.S. (17.3%), China (14.6%), or the U.K. (10.1%). But the EU is one of India’s largest trading partners, rivaling the U.S. and China.

Von der Leyen called it the “mother of all deals.”

The deal would reduce India’s tariffs on European products by around 4 billion euros ($4.7 billion) a year, the European Commission said in a release.

The deal, which the EU expects will help it double its exports to India by 2032, will reduce tariffs on over 90% of European exports to India, such as autos, machinery, agri-food products, chemicals, and aircraft.

“India will grant the EU tariff reductions that none of its other trading partners have received, dramatically improving market access for EU exports,” the European Commission said.

New Delhi has defied expectations of experts by offering to ease tariffs on sectors such as automotive and agriculture, which are particularly sensitive to the levies.

India plans to reduce tariffs on European cars “gradually” from 110% to 10% and abolish duties on car parts after five to ten years. Some major European automobile companies in India include Renault, Volkswagen, BMW, and Mercedes.

New Delhi has also nearly eliminated tariffs of up to 44% on machinery, 22% on chemicals and 11% on pharmaceuticals.

The deal has also reduced or removed high tariffs on…