AI slashes modernisation costs 10x but expands tech opportunity, says Nasscom's Velamakanni

Nasscom vice chairperson and Co-founder and CEO of Fractal, Srikanth Velamakanni.

• AI reduces enterprise costs, broadens tech industry scope
• AI could reduce project size, unlock $1.6 trillion market potential
• Nasscom urges firms to adopt an AI-first approach for growth

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Artificial Intelligence (AI) may dramatically compress the size and cost of enterprise modernisation projects but it is simultaneously expanding the overall technology opportunity for the information technology services industry, Nasscom leaders said on February 24.

The comments come at a time when there are growing concerns that AI-driven efficiency could shrink demand for tech services, which has triggered a rout in IT stocks across the world. AI firm Anthropic's rollout of new Claude plugins has unsettled investors about the demand for traditional IT services.

Speaking at the Nasscom Technology Leadership Forum (NTLF) 2026, Nasscom president Rajesh Nambiar, chairperson Sindhu Gangadharan and vice chairperson Srikanth Velamakanni said the industry is entering a phase where AI reduces execution effort while unlocking a significantly larger total addressable market.

Srikanth Velamakanni, who is also co-founder and group chief executive of Fractal, said AI’s impact on legacy modernisation shows this shift most clearly.

“With AI, the cost can come down from roughly $15 a line (of code) to about $2. A billion-dollar project could effectively become a $100-million project. That means a 10X compression in project size,” Velamakanni said.

At first glance, such efficiency gains appear negative for service providers, however, this “first-order thinking” misses the larger structural shift underway, Velamakanni said. “There are roughly 800 billion lines of code globally that can be modernised,” he said. “Even at $2 per line, that becomes a $1.6 trillion opportunity. AI compresses everything, but it exposes the entire installed base to modernisation.”

Nasscom views echoed those of tech leaders who have said recent AI developments will act as a force-multiplier and not sound the death-knell of the $283-billion industry.

Also read: Cognizant offers reality check on Anthropic AI after Rs 2-lakh-cr IT rout, says value won’t shift magically

Where’s the opportunity?

Enterprises globally continue to run massive legacy systems having with decades of technical debt, many written in older programming languages such as COBOL.

Traditionally, modernising large codebases has been expensive and risky. Projects involving millions of lines of code could cost between $10 and $15 a line, translating into programmes worth hundreds of millions or even billions of dollars, discouraging chief investment officers (CIOs) from undertaking large-scale transformations.

Now, lower costs and higher confidence are making previously untouched legacy deals viable for transformation.

The result is an expansion of the opportunity.

Nambiar said the industry itself is undergoing a structural shift in how technology is delivered, moving away from “implementation-led models” toward “outcome-driven” orchestration powered by AI and domain expertise.

“You do need to have the orchestration role, which is what the technologies will play. And the reason why it is important is that technology is actually way faster than what the deployment on the ground is going to be,” Nambiar said.

Gangadharan said AI-led transformation is also reshaping enterprise workflows across sectors.

Use cases such as predictive maintenance and autonomous work orders are shifting operations from reactive processes to real-time decision-making.

She added that Nasscom’s agenda is now centred on helping companies adopt an “AI-first” mindset along with India’s advantages in global capability centres (GCCs) and services delivery transformation.