AI reshapes India's IT services sector contracts as clients demand more for less

AI reshapes India's IT services sector contracts as clients demand more for less Tata Consultancy Services, Infosys, Wipro, HCLTech and Cognizant are rejigging business models, increasingly tying fees to performance outcomes ‌instead of hours worked.

Key points

• Persistent Systems CEO Sandeep Kalra informed Reuters that the IT provider's clients were demanding the same work for 25% to 30% less while expecting faster delivery and higher productivity.
• The Nifty IT index has tumbled by a fifth this year, with its 10 constituents losing a combined $73 ‌billion ⁠in market value.
• It is thus ‌far the only Indian IT services provider to have confirmed mass layoffs in the AI era, implementing cuts of more than 12, 000 last year.
• The odds are particularly ‌much in favour of clients, stated Jimit Arora, CEO of research and advisory firm Everest Group.
• That number represents a doubling since AI went mainstream in late 2023, remarked a person with knowledge of the matter.

These days, pricing for contracts is more probable to be dictated by performance outcomes Photo Credit: REUTERS.

Artificial intelligence promised to disrupt India's IT industry and it is delivering.

As clients demand steep cost cuts and more productivity, outsourcing giants like Tata Consultancy Services, Infosys, Wipro, HCLTech and Cognizant are rejigging business models, increasingly tying fees to performance outcomes ‌instead of hours worked.

While all the uncertainty that the new technology has brought is resulting in shorter ⁠contracts, industry executives additionally say they are losing some work entirely as customers apply AI to shift tasks in-house.

And where once the major IT businesses won contracts since they could point to their enormous employee base, that has become less and less of an advantage as AI automates more and more tasks – levelling the playing field for smaller rivals which have jumped at opportunities to snatch business.

"It's a desperate market for the service providers. The odds are particularly ‌much in favour of clients, " stated Jimit Arora, CEO of research and advisory firm Everest Group.

Software firms globally have been battered by worries that AI will render key parts of their business obsolete, but India's IT industry – worth $315 billion in annual revenue – is the most obvious victim ‌with its traditional reliance on billable hours.

For context, the Nifty IT index has tumbled by a fifth this year, with its 10 constituents losing a combined $73 ‌billion ⁠in market value.

TCS Chief Executive K ⁠Krithivasan informed Reuters that concerning 80% of the company's contracts within its finance, human resources and other business services segment are now based on outcome performance measures.

That number represents a doubling since AI went mainstream in late 2023, remarked a person with knowledge of the matter. This person was not authorised to speak to media and declined to be identified. TCS did not respond to a request for comment.

Other examples in the industry include an AI and ‌automation accord Cognizant struck with Daimler Truck in February. It stipulated AI-related cost savings would be split between the vendor and the client, according to individuals familiar with the terms.

Though it declined to comment on specific contracts, "With AI, the fundamentals are shifting, " Cognizant remarked in an official note to Reuters. "Clients now expect more value and measurable outcomes, and we are re-forging our model for that reality." Daimler Truck did not respond to a request for comment.

Meanwhile, a separate multiyear cloud ‌management accord forged in June 2025 was structured so 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, according to two residents familiar with the agreement.

While HCLTech did not respond to a request for comment, E.ON declined to comment.

As AI drives productivity gains, ⁠clients have become increasingly vocal regarding getting more for less.

But on the plus side, AI is helping Persistent win larger deals than it would have previously.

"The demarcation of ‌a scale player only by revenue is not necessarily a big thing today, " he remarked.

IT executives and analysts alike say competition from mid-sized firms has become brutally fierce.

Plenty of customers now want rapid development of pilot programmes and smaller firms are winning mandates by deploying senior leaders swiftly and offering flexible pricing, notes Phil Fersht, CEO and chief analyst at HFS Research.

"Many Tier 2 firms have been more agile and hungry in this phase, " he remarked.

Both Persistent and Coforge, another mid-sized IT services provider, have seen revenue in dollar terms grow by double digits for at least eight quarters in a row. While Coforge's sales jumped by a third, in April-June, revenue for Persistent surged 16%.

In contrast, TCS, Infosys, Wipro and HCLTech had subdued expansion of 1% to 3%.

As pressure from clients grows, some firms are ‌making rash decisions, notes Tech Mahindra CEO Mohit Joshi.

Some rivals are factoring in productivity gains of 70% to 80% over five to seven years and guaranteeing rates despite rising chip costs, Joshi informed an analysts' call last month, adding that his firm had chosen not to take such risks.

"Clearly, there is a ton of competition out there, and our competition at times is doing irrational things, " he remarked.

Infosys last month additionally informed analysts it had ⁠walked away from contracts that were no longer economically viable.

According to TCS's Krithivasan, so far the business managed to offset AI-related downward pressure on revenue with ⁠new work.

"But how fast and how much more we are able to go ahead of the (revenue) deflation will determine the growth going forward, " he continued.

TCS is additionally boosting its numbers of engineers who embed with clients to accelerate AI adoption and is hunting for AI acquisitions.

It is thus ‌far the only Indian IT services provider to have confirmed mass layoffs in the AI era, implementing cuts of more than 12, 000 last year. But firms have flagged that their traditional role as enormous hirers of new recruits may be winding down.

Meanwhile, the country's IT giants will no longer need sizeable ranks of entry-level engineers, according to former Infosys CFO V. Balakrishnan.

"The pyramid model is gone. With coding agents, we no longer need basic coding, " he remarked.

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In short, AI reshapes India' s IT services sector contracts as clients demand more for is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.