Killy reports from Tokyo

Beside the asphalt road leading to Manyata Tech Park in Bengaluru, Rajesh, a masala tea vendor, idly wipes his cups. In previous years, his stall would have been surrounded at this time of day by groups of young programmers wearing blue employee badges, the air filled with excited conversations about “new projects,” “stock options” and business trips to Silicon Valley. This year, the blue badges have disappeared. The technology park’s towering glass façades still reflect the dazzling sunlight, but the buildings are quiet, and the tea stall outside is nearly deserted.

Asia’s economic prosperity is not evenly distributed. In India, the rise of artificial intelligence is disrupting the country’s once-vaunted IT outsourcing industry; in Japan, longstanding industrial difficulties are continuing to deepen. Two economies once regarded as model performers in Asia are now passing through some of their darkest hours.

India: AI Threatens the Livelihoods of Its Programmers

On July 1, the Nifty IT Index, widely regarded as a barometer of India’s technology sector, fell to its lowest level in nearly five years. The combined market value of the country’s four largest IT outsourcing companies had almost halved in just six months.

Behind the numbers are real people. On March 31, in Bengaluru, 32-year-old software engineer Bhanuchandra Reddy took his own life in his apartment. Shortly afterwards, his wife, an IBM employee, jumped from the 17th floor of a building. Reddy had previously worked in the United States, earning around 8 million rupees a year, equivalent to approximately RMB570,000. After changes associated with the rise of AI cost him his job in the United States, he was unable to secure another stable, well-paid position for nearly a year.

This was not an isolated case. Tata Consultancy Services, India’s largest IT services company, announced the biggest workforce-reduction programme in its history in 2025, involving approximately 12,000 positions by March 2026. During the first nine months of the 2025–26 financial year alone, TCS recorded a net reduction of 25,816 employees. While major companies were rapidly removing experienced staff, the door was closing even more firmly on new graduates: during the same nine-month period, India’s five largest IT companies added a combined net total of only 17 employees, compared with 17,764 during the corresponding period of the previous financial year.

More than 1.5 million graduates in computer-related disciplines enter India’s labour market each year. Yet active vacancies in the technology sector have now fallen to their lowest level in 28 months, while vacancies for candidates with less than two years of experience have plunged by 44% year on year. Almost half of the entry-level positions that once offered young people a route into the industry have effectively vanished. Some organisations estimate that between 18,000 and 21,000 technology jobs could be eliminated in India in 2026.

On the surface, the crisis appears to be a straightforward case of AI replacing human labour. At a deeper level, however, it represents the eruption of structural problems accumulated over three decades of development in India’s IT industry. The outsourcing boom was built largely on labour-cost arbitrage: companies supplied large numbers of relatively inexpensive engineers to overseas clients. Meanwhile, many of India’s most talented technology professionals continued to move abroad. Although numerous Silicon Valley companies are led by executives of Indian origin, India itself has failed to cultivate enough technology-product companies with globally competitive core capabilities.

As the industry enters a new phase dominated by computing power and foundation models, India’s weaknesses in underlying infrastructure have become increasingly apparent. The country has only around 38,000 GPUs—fewer than one-tenth of the number believed to be available to a single leading US technology company.

Foreign investors are responding with their feet. Since the beginning of this year, global investors have withdrawn approximately US$23 billion from Indian equities, exceeding the total outflow recorded during the whole of last year. Foreign ownership of Indian shares has fallen to 14.7%, its lowest level in 14 years, while India’s weighting in the MSCI Emerging Markets Index has declined from around 19% to approximately 12%. The Nifty 50 Index has fallen by more than 8%, and the total value of India’s equity market has been overtaken by that of South Korea.

How much longer can India’s IT outsourcing industry continue in its present form? One Indian entrepreneur offered a stark prediction: “The Indian IT services industry, as it currently exists, will disappear before 2030.”

Japan: Falling Behind in Technology, Industrial Hollowing-Out and Economic Weakness

While India appears to have been caught off guard by AI in the heart of its technology industry, Japan has fallen behind step by step.

Mao Keji, an associate researcher at the International Cooperation Center of China’s National Development and Reform Commission, has summarised Japan’s structural decline as four interlocking traps: technological stagnation, after repeatedly missing major global shifts such as the internet, new energy and artificial intelligence; industrial hollowing-out, as pillar industries including automobiles come under mounting pressure; economic weakness, characterised by heavy debt, a depreciating yen and intensifying inflation; and geopolitical constraints, as Japan is squeezed by the United States while narrowing its own options through an excessively confrontational approach towards China.

The clearest feature of Japan’s relative decline is its accelerating departure from the mainstream of global technological development. Japan was once expected to use its strengths in precision manufacturing, advanced materials and industrial robotics to establish a major presence in artificial intelligence, drones and humanoid robots. Those expectations have largely failed to materialise. In the age of AI and the digital economy, the network effects created by early leadership can be extraordinarily difficult to overcome: once a country falls behind at the beginning of a technological cycle, the gap can widen at every subsequent stage.

The automobile industry served as the engine of prosperity for several generations of Japanese people, but that engine is gradually losing power. Japan’s long-term commitment to hydrogen fuel-cell technology may have appeared theoretically ideal, yet it has moved increasingly far from the mainstream direction of the global industry. Japanese carmakers have consequently been forced to watch as electric-vehicle manufacturers in China and the United States have advanced rapidly.

The combined net profits of Japan’s seven major automakers in fiscal 2026 are expected to fall by 48% from the historic peak reached in fiscal 2023. Honda is heading towards its first loss in nearly 70 years as a publicly traded company, while Nissan has recorded enormous losses for two consecutive years. During the first half of this year, Toyota’s sales in China fell by 17.1% year on year, Nissan’s declined by 15%, and Honda’s plunged by 34.7%.

The decline of Japan’s semiconductor industry has become a textbook example of lost industrial leadership. In 1988, Japanese companies controlled approximately 50% of the global semiconductor market; by 2024, their share had fallen to just 7.1%. Although the Japanese government has committed nearly ¥1 trillion in subsidies to Rapidus and its plan to manufacture domestically produced two-nanometre chips, the company still faces a financing gap of several trillion yen if it is to move successfully from trial production to mass manufacturing.

The pressure at the broader economic level is equally striking. The yen at one point weakened beyond ¥162 to the US dollar, its lowest level in nearly four decades. Japan’s gross government debt has exceeded 204% of GDP, the highest ratio among advanced economies. In the first half of 2026, 5,346 Japanese companies with liabilities of at least ¥10 million went bankrupt, exceeding 5,000 for the first time in 12 years. The number was 7% higher than a year earlier and marked a fifth consecutive annual increase. Among these failures, 45 were directly associated with the depreciation of the yen, an increase of 32.3% from the corresponding period a year earlier and the highest figure since records began.

Japan and India Find Common Ground in 2026

In early July 2026, Japanese Prime Minister Sanae Takaichi visited India. During the meetings, the two countries reaffirmed a plan under which Japan would invite 500 highly skilled Indian professionals to work in Japan over the coming years, with a particular focus on artificial intelligence.

Takaichi has long made tighter immigration controls one of her central political positions, and her government has indeed introduced more restrictive measures since she took office. Yet during her July visit to India, she actively supported the admission of several hundred AI specialists.

The plan generated controversy in Japan. Critics argued that inviting Indian AI professionals appeared inconsistent with the prime minister’s stricter approach to immigration. What looks like a policy contradiction, however, may be better understood as an attempt to strike a balance. Tightening controls on general immigration responds to domestic public concern, while making exceptions for highly skilled specialists addresses demands from Japanese industry. A target of 500 people is carefully calibrated: several hundred workers are unlikely to produce a noticeable effect on Japan’s social structure, but they may still help companies fill part of their research and development gap.

The emerging partnership between Japan and India is not limited to the movement of people. The two sides signed more than 120 agreements covering areas such as the development of multilingual, sector-specific AI models, stronger cybersecurity cooperation and joint assessments of risks involving data centres and semiconductors. Taken together, these measures amount to more than a conventional talent-recruitment programme. They represent the beginnings of a broader framework for Japan–India cooperation in artificial intelligence.

Their decision to work more closely together reveals a deeper reality: in the AI era, the old model of competing and developing alone is becoming increasingly ineffective.

Commentary

Cooperation May Offer a Way Forward

The convergence of Indian and Japanese interests at this moment reveals a deeper reality: in the age of artificial intelligence, the old model of going it alone is losing its effectiveness.

India and Japan, two Asian economies once enthusiastically pursued by global capital, are now experiencing their own forms of economic pain. India’s lesson is that an outsourcing model built on the cost advantage of inexpensive labour is exceptionally vulnerable in the AI era. Japan’s lesson is even more sobering: when technological stagnation and industrial hollowing-out reinforce one another, even an economic giant can rapidly lose ground amid a new wave of global transformation.

Asia’s prosperity should never be taken for granted. The economies that remain vigorous and resilient may ultimately be those that preserve the capacity to evolve continuously—just as ZXMOTO has demonstrated.