Artificial intelligence is beginning to reshape South Asia’s labour markets, slowing hiring in some sectors while creating new opportunities for workers and service exporters, according to a new World Bank report.

The World Bank’s ‘South Asia Economic Update: Adopting AI for Growth’, released on Tuesday, says AI adoption is rising across the region, although it remains well behind advanced economies. The report says AI is already affecting jobs and firms, particularly in business process outsourcing (BPO) and information and communications technology (ICT), sectors that account for a relatively large share of South Asia’s exports.

For years, South Asian companies, including those in Nepal, have provided services to clients in the United States and Europe from within the region. These include customer support, data processing, software development and other business services, a model commonly known as offshoring.

The World Bank says the spread of AI is now creating a risk of “reshoring of AI-exposed activities”. Foreign companies can use AI to perform some business functions that they previously outsourced to South Asian suppliers, reducing demand for some lower-value, automatable tasks.

The report says South Asian exporters in sectors where AI can readily substitute for labour face “demand erosion if their foreign buyers deploy AI to reshore business functions that were previously sourced through imports”. It cites BPO activities such as software development, customer support, accounting, web development and payroll processing as examples of tasks that can be automated.

At the same time, the report finds that AI is creating new opportunities for South Asian suppliers through global value chains. It says firms are increasingly using AI to find new market opportunities, while demand is rising for workers with AI-related skills. Jobs requiring those skills command a wage premium of nearly 30 percent compared with other white-collar jobs.

The report also points to opportunities created by the changing nature of outsourced work. As foreign companies adopt AI, South Asian suppliers can move towards higher-value activities that complement AI rather than compete directly with it.

“AI adoption has proceeded rapidly since the release of ChatGPT in November 2022,” the World Bank says, noting that its effects are already visible in South Asia’s BPO and ICT sectors. “Early evidence suggests that firms in these sectors are experiencing productivity gains along with greater AI.”

The report says exports in these sectors continue to grow even as hiring has slowed following the introduction of generative AI. At the same time, demand for AI-related competencies in South Asian firms has increased.

Franziska Ohnsorge, World Bank Group chief economist for Asia, said AI could provide an important boost to productivity and create new sources of growth for the region.

“The adoption of AI has the potential to transform South Asia’s development trajectory by boosting labour productivity, expanding export opportunities, and improving public service delivery,” she said. “But to reap these benefits, governments need to address the foundational gaps that hold back adoption.”

The report estimates that about 15 percent of South Asian workers are in jobs where AI and human labour have strong complementarities, meaning AI could increase their productivity. In contrast, only 7 percent of jobs are highly exposed to AI without strong complementarity and are therefore at greater risk of automation. That is well below the 15 percent exposure recorded in other emerging-market and developing economies.

The relatively low overall exposure in South Asia reflects the region’s large share of low-skilled, agricultural and manual work, which is less susceptible to automation by AI. The workers most vulnerable to displacement are moderately educated and young, while highly educated and experienced workers have greater scope to benefit from AI-driven productivity gains.

For Nepal’s technology sector, the changes point to the need for workers to develop skills that complement AI rather than compete with it, said Gaurav Raj Pandey, former president of the Nepal Association for Software and IT Services Companies (NAS-IT).

“AI-complementary” skills will become increasingly important, he said, including the ability to use AI tools, test and validate AI-generated outputs, work with data and domain-specific knowledge, and design solutions.

Pandey said the declining cost of building systems and collecting and processing data was encouraging more companies to adopt AI and digital services. This, he said, could expand demand for new types of work and create opportunities for countries such as Nepal to increase their exports of IT and digital services.

“The global economy was worth around $118 trillion in 2025. It is projected to nearly double to more than $200 trillion over the next 15 years,” Pandey said. “Global spending on IT is around $6.3 trillion in 2026, of which $3.3 trillion is spent on software and IT services. By 2040, technology spending is projected to reach $12 trillion to $15 trillion.”

He said the expansion of AI and digital transformation would drive a sharp increase in corporate spending on technology, creating opportunities for countries such as Nepal to expand IT service exports and earn more foreign exchange.

“Companies around the world will increase their investment and spending on technology several times more than expected because of AI and digital transformation,” Pandey said. “This presents a major opportunity for countries like Nepal that export IT services to expand their service exports and bring in foreign currency.”