Narayan AmmachchiThe Indian IT services industry is currently navigating a period of intense financial and operational strain as global clients openly demand discounts of up to 30% on existing contracts.
“Their argument is ‘you’re making massive productivity gains from AI tools, so we should pay less,” said a marketing manager of a major IT firm in Bangalore.
Industry analysts report that approximately 20% to 30% of current contracts are being reopened for renegotiation. Clients are seeking to insert specific AI clauses into agreements. These clauses require vendors to pass on any efficiency gains from AI directly to the client.
This shift represents a fundamental threat to the business model that has sustained the Indian IT sector for the last 30 years, where clients were billed based on the specific number of engineers assigned to a project and the hours they worked.
That traditional “time and material” model is rapidly losing its relevance in an era where AI tools like GitHub Copilot and various automated assistants allow a single AI agent to perform tasks that previously required five human engineers.
The impact is already visible in the data, as Coherent Market Insights notes that 40% to 50% of new outsourcing deals signed in 2025 already include these AI automation clauses.
During a call with Nomura in September 2025, Cognizant’s CFO, Jatin Dalal, admitted that clients are now even seeking to renegotiate old, long-term contracts that were previously considered stable.
While in the past only 15% to 20% of contracts were renegotiated annually with similar discounts, Dalal expects this figure to jump to 25%, with clients pushing for productivity-linked savings of 20% to 25%.
One unconfirmed report suggests a vendor had to reduce contract value by 30% after the client threatened to shift the work to a competitor offering AI-assisted delivery. Even if isolated, such instances are shaping negotiation benchmarks across the sector.
Vidhi Agrawal, Director of Strategic Commercialization and Operations at Databricks, suggests that this shift was predictable and that some competitors were better prepared.
She noted that Accenture recognized the AI shift early by building outcome-based models and AI-led delivery platforms, which allowed them to reshape their pricing structures before clients could force the issue.
The financial impact is already visible in company performance. Wipro reported a 1.2% year-on-year decline in constant currency revenue in Q3 FY26, following a 2.6% drop in Q2. Currency movements provided some support.
A weaker rupee added around 5–6 percentage points to reported growth, masking the underlying weakness. Without that support, growth would have appeared flat or negative.
Equity markets have reacted to this shift. Over the past year, IT stocks have seen sustained pressure. TCS has seen its share price fall sharply from previous highs, while Infosys has also declined significantly. The correction has been even more pronounced among small- and mid-cap IT firms, where growth expectations were higher and visibility is lower.
Cutting prices is not straightforward
Giving large discounts is risky because many processes remain difficult to automate due to messy data, legacy systems, or strict regulatory requirements. Using AI also introduces its own set of costs, including expensive software licenses and heavy investments in cloud servers and data management.
At the same time, reducing headcount to cut costs is a sensitive issue that could attract unwanted attention from labor unions. To manage this crisis, many firms are instead restructuring their engineering teams. Lacey Kaelani, CEO of Metaintro, a job portal, said she observed an increase in job openings for new hires who can handle both traditional development and AI-specific tasks like prompt engineering and architecture in cities like Bengaluru, Hyderabad, and Pune.
These firms are not necessarily reducing their total headcount but are instead restructuring around smaller, more specialized groups of engineers. Thomas Anglero, a former Nordic CTO for Cognizant, argues that IT firms must move away from the old measurement of charging for man-hours and transition into becoming service and product-oriented companies.
He believes that utilizing resources to produce three to five times more work and offering outcome-based deals is the only way to maintain a viable business. In his view, producing an outcome-based model is the most beneficial short-term strategy because it allows firms to demonstrate that they are delivering significantly more value than what the client has actually paid for.
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