Indian IT firms are confronting a significant challenge in the era of Artificial Intelligence, primarily due to years of prioritizing substantial payouts to shareholders over strategic investments in research and development (R&D). Data reveals that since 2017, ten Indian IT companies distributed INR 4.42 lakh crore in dividends, alongside equity reductions through buybacks. Between FY16 and FY25, the top five Indian IT companies collectively invested only ₹1.2 trillion in gross block but disbursed ₹6.46 trillion to shareholders, meaning for every rupee reinvested, five rupees were paid out. This inclination towards generous shareholder returns resulted in a sharp decline in average annual R&D investment relative to cash profits, falling from 22% (FY16-FY20) to 6.7% (FY21-FY25). The payout ratio, encompassing dividends and buybacks, surged from 64.1% to 76.7% during these periods. This underinvestment has created deep strategic vulnerabilities, leading to slower revenue growth; combined revenues for the top five firms grew only 4.9% year-on-year in FY25, the slowest rate since FY18. The impact of AI is evident in the workforce, with major IT players like TCS and Infosys implementing significant headcount reductions. TCS, for instance, cut 20,000 employees in Q3 ended September 2025, partly due to AI tools, and a total of over 30,000 jobs in the last six months amidst AI-driven restructuring. Infosys also reduced its workforce by an estimated 20,000 from FY23 to FY25. AI now handles over 40% of software development work in Indian tech firms, with junior and mid-level roles being most susceptible to automation. While AI is displacing traditional roles, it is also creating new opportunities, with NASSCOM reporting a 45% surge in AI and data science-related job openings. Indian CEOs are now doubling down on AI investments, with plans to allocate about 1.7% of revenues to AI initiatives in 2026, yet workforce readiness remains a significant concern, as only 55% of Indian CEOs directly drive AI agendas compared to a 72% global average. The rise of Global Capability Centres (GCCs) further compounds the challenges for traditional Indian IT outsourcing firms, representing a 'deeper problem' they have yet to fully address.