AI pressures India’s IT services giants as clients seek lower costs

AI is reshaping India’s IT services sector as clients push providers to deliver more productivity at lower prices. Tata Consultancy Services, Infosys, Wipro, HCLTech and Cognizant are adjusting business models as customers demand steep discounts, bring some work in-house and favor shorter contracts amid uncertainty.

The pressure is hitting an industry worth $315 billion in annual revenue and built around billable hours. TCS Chief Executive K Krithivasan told Reuters that about 80% of contracts in the company’s finance, human resources and business services segment are now tied to performance outcomes. Cognizant said clients increasingly expect measurable value, while separate deals involving Daimler Truck and E.ON show vendors accepting pricing linked to AI savings, efficiency gains or business outcomes.

Persistent Systems CEO Sandeep Kalra said clients are asking for the same work for 25% to 30% less, even as AI helps the company pursue larger deals. Mid-sized firms such as Persistent and Coforge have posted stronger growth than larger rivals, with Persistent revenue up 16% in April-June while major firms grew 1% to 3%.

Some executives warn competition is pushing risky pricing assumptions. Tech Mahindra CEO Mohit Joshi said some rivals are factoring in productivity gains of 70% to 80% over five to seven years. TCS has announced cuts of more than 12,000, while industry leaders say demand for large entry-level engineering cohorts is fading.