The rise of artificial intelligence is rapidly changing the balance of power between India’s technology giants and their global clients, pushing companies such as Tata Consultancy Services, Infosys, Wipro, HCLTech and Cognizant to overhaul how they price and deliver services.
Instead of paying primarily for the number of employees assigned to a project or the hours they work, customers are increasingly demanding contracts tied to measurable results. At the same time, companies are under pressure to deliver more work at significantly lower prices as AI tools automate tasks that once required large teams of engineers.
The transformation is creating a difficult environment for India’s traditional IT outsourcing model. Some clients are taking work back in-house with the help of AI, while others are signing shorter contracts because of uncertainty over how quickly technology will change.
Jimit Arora, CEO of research and advisory firm Everest Group, described the current environment bluntly.
“It’s a desperate market for the service providers. The odds are very much in favour of clients.”
The pressure is also weakening one of the biggest advantages historically enjoyed by India’s largest IT companies: scale.
For years, multinational clients turned to companies such as TCS and Infosys partly because they could deploy thousands of engineers around the world. But as AI automates coding, testing, analysis and other routine tasks, clients need fewer people to accomplish the same amount of work.
That is opening the door for smaller technology companies, which can compete by moving faster, deploying experienced executives and offering more flexible commercial arrangements.
The changing landscape has already been reflected in financial markets. The Nifty IT index has fallen about a fifth this year, with its 10 constituents losing a combined $73 billion in market value.
Contracts Are Being Rewritten
One of the clearest signs of change is the way IT services are being priced.
Performance-based contracts, in which vendors are rewarded for delivering specific business outcomes rather than simply providing manpower, are becoming increasingly common.
TCS Chief Executive K Krithivasan told Reuters that roughly 80% of the company’s contracts in its finance, human resources and other business-services operations are now based on outcome-performance measures.
A person familiar with the matter, who was not authorised to speak publicly and declined to be identified, said the proportion had doubled since AI entered the mainstream in late 2023. TCS did not respond to a request for comment.
Cognizant has also embraced the shift. In February, it struck an AI and automation agreement with Daimler Truck under which AI-generated cost savings would be shared between the technology provider and the client, according to people familiar with the arrangement.
“With AI, the fundamentals are shifting,” Cognizant said in a statement to Reuters, while declining to discuss specific contracts. “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.
Another example involves HCLTech and German utility E.ON. A multiyear cloud-management agreement signed in June 2025 reportedly structured payments around efficiency improvements and business outcomes. Under the arrangement, HCLTech would receive no payment during the first year, with payments beginning in the second year and linked to specified gains, according to two people familiar with the agreement.
E.ON declined to comment, while HCLTech did not respond to a request for comment.
Clients Are Demanding Bigger Savings
As AI improves productivity, customers are increasingly asking IT companies to share those gains through lower prices.
Sandeep Kalra, CEO of Persistent Systems, said clients were seeking the same amount of work for 25% to 30% less money while simultaneously demanding faster delivery and greater productivity.
Yet AI is not simply destroying opportunities for smaller companies. It is also allowing some of them to compete for larger contracts than they could have pursued in the past.
“The demarcation of a scale player only by revenue is not necessarily a big thing today,” Kalra said.
That change is intensifying competition between India’s largest IT companies and their smaller rivals.
Phil Fersht, CEO and chief analyst at HFS Research, said many clients now wanted rapid development of pilot programmes and were turning to smaller firms that could deploy senior executives quickly while offering greater flexibility on pricing.
“Many Tier 2 firms have been more agile and hungry in this phase,” he said.
The results are visible in recent financial performance.
Persistent Systems and Coforge have each recorded double-digit dollar-revenue growth for at least eight consecutive quarters. Between April and June, Persistent's revenue rose 16%, while Coforge's sales increased by roughly one-third.
The biggest players have been much slower.
TCS, Infosys, Wipro and HCLTech recorded growth of only about 1% to 3% during the same period.
Race to the Bottom?
The growing pressure to win contracts is also raising concerns that some companies may be making overly aggressive promises about the productivity gains AI will deliver.
Tech Mahindra CEO Mohit Joshi warned that some competitors were assuming productivity improvements of 70% to 80% over five to seven years while guaranteeing prices to customers, even as the cost of AI-related infrastructure, including chips, rises.
Tech Mahindra has chosen not to take what Joshi considers excessive risks.
“Clearly, there is a ton of competition out there, and our competition at times is doing irrational things,” he said during an analysts' call last month.
Infosys said last month that it had walked away from contracts it no longer considered economically viable.
For the moment, however, TCS says it has been able to compensate for downward pressure on revenue caused by AI by securing new business.
Krithivasan cautioned that the longer-term outlook will depend on whether new opportunities continue to grow faster than the revenue being lost or reduced through AI-driven efficiency.
“But how fast and how much more we are able to go ahead of the (revenue) deflation will determine the growth going forward,” he said.
TCS is responding by increasing the number of engineers who work directly alongside clients to speed up AI adoption. The company is also looking for potential acquisitions in artificial intelligence.
The End of the Traditional IT Workforce?
Perhaps the biggest long-term question is what AI means for employment in an industry that has traditionally been one of India's largest sources of high-skilled jobs.
TCS has so far been the only major Indian IT services company to announce mass layoffs in the AI era, cutting more than 12,000 jobs last year. But executives and analysts increasingly warn that the industry's role as a massive recruiter of entry-level engineers may be changing permanently.
For decades, Indian IT companies relied on a pyramid-shaped workforce, with relatively small numbers of senior professionals overseeing much larger groups of junior employees who handled routine programming and other tasks.
AI threatens to make that structure far less useful.
Former Infosys chief financial officer V. Balakrishnan said the industry's traditional employment model was already being dismantled.
“The pyramid model is gone. With coding agents, we no longer need basic coding.”
That could prove to be one of the most consequential effects of the AI revolution in India.
The country's IT giants are now being challenged on two fronts at once: clients want lower prices and better results, while AI is reducing the need for the large workforces that once gave the biggest outsourcing companies their competitive advantage.
For an industry built around selling human expertise by the hour, the future is increasingly about selling what machines and people can achieve together — and proving that the results are worth the price.