Artificial intelligence is changing how India’s IT services companies win contracts, price their work and compete for business as clients push for greater productivity at lower costs.
Major outsourcing firms including Tata Consultancy Services, Infosys, Wipro, HCLTech and Cognizant are increasingly linking fees to business outcomes rather than hours worked. Industry executives also say some work is moving back in-house as clients use AI to handle tasks themselves. Uncertainty around the technology is also leading to shorter contracts.
Large employee bases, once a major advantage for India’s IT giants, are becoming less important as AI automates more tasks. This is giving smaller technology firms more opportunities to compete.
“It’s a desperate market for the service providers. The odds are very much in favour of clients,” said Jimit Arora, CEO of Everest Group.
India’s IT industry generates around $315 billion in annual revenue and has been particularly exposed to AI disruption because of its traditional dependence on billable hours. The Nifty IT index has fallen by about 20% this year, while its 10 companies have lost a combined $73 billion in market value.
TCS CEO K Krithivasan said around 80% of the company’s contracts in finance, human resources and other business services are now linked to outcome-based performance measures. That is double the level seen since AI became mainstream in late 2023, according to a person familiar with the matter.
Cognizant’s AI and automation agreement with Daimler Truck, signed in February, included provisions to share AI-driven cost savings between the companies. “With AI, the fundamentals are shifting,” Cognizant said. “Clients now expect more value and measurable outcomes, and we are re-forging our model for that reality.”
A separate cloud management agreement between HCLTech and German utility E.ON, signed in June 2025, was structured so HCLTech would receive no payment during the first year. Payments from the second year would depend on efficiency gains and business outcomes.
Clients are also demanding sharper price reductions. Persistent Systems CEO Sandeep Kalra said customers were seeking the same work for 25% to 30% less, while expecting faster delivery and higher productivity.
“The demarcation of a scale player only by revenue is not necessarily a big thing today,” he said.
Mid-sized companies are gaining ground as customers seek faster pilot programmes, senior talent and flexible pricing. Phil Fersht, CEO and chief analyst at HFS Research, said, “Many Tier 2 firms have been more agile and hungry in this phase.”
Persistent and Coforge have recorded double-digit dollar revenue growth for at least 8 consecutive quarters. During April-June, Persistent’s revenue rose 16%, while Coforge’s sales increased by about 33%. TCS, Infosys, Wipro and HCLTech recorded growth of only 1% to 3%.
Tech Mahindra CEO Mohit Joshi said some competitors were assuming productivity gains of 70% to 80% over 5 to 7 years while guaranteeing prices despite higher chip costs.
“Clearly, there is a ton of competition out there, and our competition at times is doing irrational things,” he said.
Infosys said last month that it had walked away from contracts that were no longer economically viable. TCS said it has so far offset AI-related revenue pressure with new business, but future growth will depend on how quickly it can stay ahead of falling prices.
TCS is also increasing the number of engineers working directly with clients to accelerate AI adoption and is exploring AI acquisitions. It remains the only major Indian IT services provider to have announced large-scale layoffs during the AI era, cutting more than 12,000 jobs last year.
The industry is also facing a shift in hiring patterns. Former Infosys CFO V. Balakrishnan said large IT companies may no longer need huge numbers of entry-level engineers.
“The pyramid model is gone. With coding agents, we no longer need basic coding,” he said.
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