AI Adoption and Changing Client Demands Reshape India's IT Services Sector

Artificial intelligence is actively reshaping India's $315-billion IT industry, forcing major outsourcing companies to adopt outcome-based pricing, cut costs, and compete with more agile mid-sized rivals. Outsourcing giants including Tata Consultancy Services (TCS), Infosys, Wipro, HCLTech, and Cognizant are rejigging their business models by increasingly tying fees to performance outcomes instead of hours worked, driven by clients demanding steep price cuts and greater productivity.

Industry executives report that some work is being lost entirely as customers use AI to shift tasks in-house, while the uncertainty introduced by the new technology has resulted in shorter contract durations. Furthermore, the historical advantage of huge employee bases that allowed big IT companies to win contracts has diminished as AI automates routine tasks, leveling the playing field for smaller competitors.

The shift has placed immense pressure on traditional billing models. The Nifty IT index has tumbled by a fifth this year, resulting in its 10 constituents losing a combined $73 billion in market value. Contract pricing is now more frequently dictated by performance outcomes. TCS Chief Executive K Krithivasan stated that about 80% of the company's contracts within its finance, human resources, and other business services segment are now based on outcome performance measures, representing a doubling since AI went mainstream in late 2023.

Other industry players are structuring agreements to reflect these realities. In February, Cognizant struck an AI and automation deal with Daimler Truck stipulating that AI-related cost savings would be split between the vendor and the client. Additionally, a multiyear cloud management deal forged in June 2025 was structured so that HCLTech will not be paid by German utility E.ON for the first year, with payments from the second year tied to efficiency gains and specific business outcomes.

Clients are increasingly vocal about securing more value for less expenditure. Persistent Systems CEO Sandeep Kalra noted that clients are demanding identical work for 25% to 30% less while expecting faster delivery and higher productivity, though AI is simultaneously helping Persistent secure larger deals than previously attainable. Meanwhile, mid-sized firms such as Persistent and Coforge have recorded double-digit dollar revenue growth for at least eight quarters in a row, with Persistent's revenue surging 16% and Coforge's sales jumping by a third in April-June, contrasting with subdued growth of 1% to 3% for TCS, Infosys, Wipro, and HCLTech.

The intense market dynamics have prompted caution among some industry leaders. Tech Mahindra CEO Mohit Joshi remarked during a recent analysts' call that some competitors are making rash decisions by factoring in productivity gains of 70% to 80% over five to seven years and guaranteeing prices despite rising chip costs. Infosys also reported walking away from contracts that were no longer economically viable.

Addressing the broader operational shifts, TCS's Krithivasan noted that the company has thus far offset AI-related revenue pressure with new work, though future growth will depend on navigating revenue deflation. TCS has implemented staff reductions exceeding 12,000 over the past year. Industry observers suggest that traditional hiring models are changing. Former Infosys CFO V. Balakrishnan noted that the traditional pyramid model is fading as coding agents reduce the reliance on entry-level engineers for basic coding tasks.

"The transition from billable hours to outcome-based pricing marks a fundamental structural shift for the Indian IT services sector. While artificial intelligence creates immediate pricing pressure and challenges traditional business models, it also forces outsourcing firms to innovate and improve operational efficiency. Mid-sized companies are proving that agility and specialized execution can capture significant market share in this evolving technological landscape." — Dr. Shishir Gupta, Founder & CEO, StartupLanes