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India’s IT firms shift contracts toward performance as AI pressures pricing
The Nifty IT index has dropped about 20% this year, and Reuters reported that TCS says roughly 80% of certain services contracts are now tied to outcome measures.
Artificial intelligence is reshaping India’s IT services industry as outsourcing giants move away from pricing tied to hours worked and toward fees linked to performance outcomes, Reuters reported. The change is driven by clients demanding steeper price cuts and higher productivity from vendors.
Reuters said industry executives are also seeing some work move to customers using AI to do tasks in house, while the uncertainty around the technology is contributing to shorter contract lengths. At the same time, AI is automating tasks that previously helped large firms win deals based on their large employee bases, which is leveling the playing field for smaller rivals.
According to Reuters, India’s IT industry is worth about $315 billion in annual revenue, with the Nifty IT index down by about a fifth this year. The report said the index’s 10 constituents have lost a combined $73 billion in market value.
Reuters added that Tata Consultancy Services has indicated that about 80% of its contracts in its finance, human resources, and other business services segment are now based on outcome performance measures, a figure described as having doubled since AI went mainstream in late 2023. The outlet also quoted an Everest Group executive saying the odds favor clients in what he called a desperate market for service providers.