Archive · 25 Aug 2026
AI Reprices Indian IT as Smaller Firms Challenge Giants
Indian technology companies used to win work partly because they had very large teams.
AI can now help smaller teams do some of the same work with fewer people.
Because of this, customers want to pay for results instead of paying mainly for hours worked.
Some customers are also bringing work back inside their own companies.
Contracts are becoming shorter, often lasting 12 or 18 months instead of five years.
Large companies such as Tata Consultancy Services, Infosys and Cognizant are facing pressure on fees and hiring.
Smaller companies such as Persistent Systems and Coforge have recently grown quickly.
The industry is still changing, and the companies that make the best decisions about AI and pricing may do best.
Tata Consultancy Services says about 80% of contracts in its business-services segment now use outcome-based measures.
Clients are demanding AI-related savings, bringing lower fees, in-house work and shorter 12- to 18-month contracts.
Tata Consultancy Services reduced net headcount by more than 23,000 last fiscal year, while fresher hiring has weakened.
Persistent Systems reported 16.1% year-on-year revenue growth, and Coforge grew revenue by roughly a third.
AI is reducing the advantage of large workforces, allowing smaller firms with AI-augmented teams to compete for major contracts.
- Who
- Indian IT services companies including Tata Consultancy Services, Infosys, Cognizant, Persistent Systems and Coforge, along with their clients.
- What
- AI is changing IT outsourcing by shifting contracts toward measurable outcomes, reducing fees and weakening the advantage of very large workforces.
- When
- The shift has accelerated since AI became mainstream in late 2023; the article discusses developments in the latest fiscal and June quarters and the next two or three quarters.
- Where
- The changes are affecting the Indian IT services industry, including firms associated with Bengaluru.
- Why
- Clients believe AI can reduce service-delivery costs and are seeking savings, bringing work in-house or demanding pricing based on results.
Large IT Services Firms
Smaller AI-Enabled Firms and Clients
Scale versus efficiency
Large IT Services Firms
Large firms retain long-standing client relationships, domain expertise and delivery infrastructure, and can still win complex deals at scale.
Smaller AI-Enabled Firms and Clients
AI allows smaller, concentrated teams to compete with much larger workforces, reducing the value of scale and bench strength.
Pricing contracts
Large IT Services Firms
Large vendors face pressure to absorb AI productivity gains into outcome-based contracts, potentially reducing margins.
Smaller AI-Enabled Firms and Clients
Clients want measurable results and a share of AI-generated savings, while some are bringing work in-house to reduce external dependence.
Workforce strategy
Large IT Services Firms
Large firms have reduced or weakened fresher hiring, but the article warns that removing junior roles may create future shortages of people able to evaluate AI-generated work.
Smaller AI-Enabled Firms and Clients
Smaller firms can operate with fewer employees and may gain market share in specific areas by moving faster than legacy delivery organizations.
- Outcome-based contracts
- Tata Consultancy Services CEO K Krithivasan said roughly 80% of contracts in the company’s finance, human resources and other business-services segment use outcome performance measures.
- Contract shift
- The reported share of outcome-based contracts has doubled since AI went fully mainstream in late 2023.
- Contract duration
- Contracts that once commonly lasted five years are increasingly lasting 12 or 18 months.
- Tata Consultancy Services headcount
- Tata Consultancy Services cut net headcount by more than 23,000 in the last fiscal year.
- Persistent Systems growth
- Persistent Systems posted 16.1% year-on-year revenue growth in its June quarter and its 25th consecutive quarter of sequential growth.
- Coforge growth
- Coforge grew revenue by roughly a third year-on-year, helped by acquisitions and competitive wins.
- Expected pressure
- The article expects margin pressure, continued softness in fresher hiring and further gains by nimble tier-two firms.