This study analyses the impact of Artificial Intelligence (AI) on labour markets and employment patterns in India within the broader context of rapid technological advancement and economic restructuring. India has emerged as a global leader in AI adoption, recording an annual hiring growth rate of nearly 33% along with substantial penetration of AI-related skills across industries. The findings reveal that AI is not merely displacing jobs but fundamentally transforming the nature of work by automating routine tasks while augmenting human capabilities and improving productivity. Empirical estimates suggest that AI could contribute approximately $450–500 billion to India’s GDP and generate around 4.6–5.6 million new jobs, while displacing nearly 3.8–5.0 million jobs, resulting in a modest but positive net employment gain. Sectoral analysis indicates that IT, healthcare, and retail sectors are experiencing employment growth, whereas manufacturing and banking sectors face higher automation risks due to routine task intensity. The study further highlights a significant skill gap of nearly 38–40%, with only 12–15% of the workforce possessing formal AI or digital training, reflecting limited workforce preparedness. Additionally, AI is contributing to labour market polarization by increasing demand for high-skilled workers while reducing opportunities for low- and mid-skilled workers. The expansion of gig and platform-based employment also reflects evolving and flexible work arrangements. Overall, the study concludes that while AI offers substantial opportunities for economic growth and employment generation, it also presents challenges related to displacement and skill mismatch, necessitating targeted reskilling, policy support, and inclusive strategies for sustainable labour market development.