Artificial intelligence is rapidly changing the economics of India’s massive IT services industry.
Companies such as TCS, Infosys, Wipro, HCLTech and Cognizant are increasingly moving away from the traditional model of charging clients based on the number of employees or hours worked. Instead, customers are demanding faster delivery, lower costs and payment linked to measurable business outcomes.
The shift is putting India’s roughly $315-billion IT services industry under significant pressure.
The Old IT Model Is Breaking
For decades, India’s IT giants built their businesses around a simple formula: hire large numbers of engineers, sell their expertise by the hour and manage massive outsourcing contracts.
AI is challenging that model.
As coding assistants and AI agents automate repetitive tasks, clients are asking a basic question:
Why should they pay for hundreds of employees if AI can get the same work done with far fewer people?
This has strengthened the negotiating power of customers and forced IT companies to rethink how they price their services.
From Paying for People to Paying for Results
One of the biggest changes is the shift toward outcome-based contracts.
TCS CEO K. Krithivasan said around 80% of the company’s contracts in its finance, HR and other business-services segment are now linked to performance outcomes — roughly double the level seen when generative AI began going mainstream.
Under this model, clients are less interested in how many employees an IT company deploys. They want to know what the technology actually delivers.
For example, instead of paying an IT provider simply to manage a system, a customer could pay based on improvements in efficiency, cost savings or business performance.
Clients Are Demanding 25–30% More Value
AI’s productivity gains are increasingly being passed on to customers.
Persistent Systems CEO Sandeep Kalra said some clients are demanding the same amount of work for 25% to 30% less money, while simultaneously expecting faster delivery and higher productivity.
That creates a difficult equation for traditional IT companies: AI makes their employees more productive, but customers increasingly expect those productivity gains to translate into lower prices.
Smaller IT Companies Are Getting an Opening
The AI revolution is also weakening one of the biggest advantages traditionally enjoyed by India’s IT giants: scale.
Earlier, having hundreds of thousands of employees was a major selling point. Today, AI can allow smaller companies to accomplish more with much smaller teams.
This has created opportunities for mid-sized companies such as Persistent Systems and Coforge, which have been recording significantly faster growth than some of India’s traditional IT giants.
During the April-June quarter, Persistent’s revenue increased 16%, while Coforge’s sales jumped by roughly one-third. By comparison, TCS, Infosys, Wipro and HCLTech reported much more subdued growth of around 1% to 3%.
Some Contracts Are Becoming Riskier
The new pricing model also means IT companies are taking on greater financial risk.
In one reported deal, HCLTech agreed to receive no payments from German utility E.ON during the first year of a multiyear cloud-management contract. Payments in subsequent years would depend on achieving agreed efficiency gains and business outcomes.
Cognizant has also entered an arrangement with Daimler Truck in which AI-driven cost savings would be shared between the client and the IT provider.
The upside is potentially higher rewards. The downside is that IT companies may have to absorb the cost if promised productivity improvements don’t materialise.
India’s IT Job Pyramid Could Be Changing
Perhaps the biggest long-term question is employment.
India’s IT industry has traditionally depended on a pyramid model — a relatively small number of senior professionals supported by a huge workforce of entry-level engineers performing routine coding and support tasks.
AI coding agents threaten that structure.
Former Infosys CFO V. Balakrishnan argued that the traditional pyramid model is fading because basic coding can increasingly be handled by AI.
TCS has already announced more than 12,000 job cuts during the AI era, while other companies have warned that their historical role as huge recruiters of entry-level talent could diminish.
That doesn’t necessarily mean IT jobs disappear altogether. Instead, demand could shift toward engineers who can work with AI, manage complex systems, design solutions and deliver higher-value outcomes.
AI Is Creating a Tough New Reality
The Indian IT industry isn’t necessarily losing its importance. In fact, AI adoption itself is creating huge opportunities for companies that can help businesses implement it.
But the economics are changing.
The question is no longer:
“How many engineers can you provide?”
It is increasingly:
“How much business value can you deliver — and how quickly?”
That shift could fundamentally reshape India’s IT services industry, its pricing models and even the type of technology talent the country needs over the next decade.
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