Indian IT Firms Brace for Pricing Disruptions Amid AI-Driven Deflationary Pressures in Fiscal 2027

Indian IT Services Face Pricing Pressure from AI-Led Deals

The Indian IT services sector is poised to face significant pricing pressure in the upcoming fiscal year (FY27) due to the increasing adoption of artificial intelligence (AI). Industry experts warn that clients are expecting to renegotiate deals mid-cycle, forcing IT services players to rethink their cost structures and business models.

According to Ray Wang, founder and principal analyst at Constellation Research, the contract duration is getting reduced by 15 to 30 percent every year, forcing IT firms to compete for deals more often. As a result, the deals are likely to get repriced downwards as clients want AI-led productivity gains to be priced in.

| Revenue Compression Range (FY26) | Delivery Areas | | --- | --- | | 5-15 percent | Visible and measurable productivity gains | | Higher pressure | Highly standardised environments |

Data from Greyhound Research reveals that Indian IT companies have seen a reasonable range for compression in revenue per unit of work in delivery areas where productivity gains are visible and measurable. In highly standardised environments, the pressure can be even higher, the data added.

Enterprises are increasingly demanding the ability to pause, re-scope, or even re-bid portions of work mid-cycle, said Sanchit Vir Gogia, founder and CEO, Greyhound Research. This is a direct response to uncertainty around how AI will reshape delivery economics over the life of a contract.

Revenue per unit of work in an AI-influenced delivery model breaks away from metrics such as revenue per employee. Delivery became a combination of people, automation, and model-driven execution. This shift in delivery economics is also changing how contracts are being planned.

Rajiv Ranjan, associate research director at IDC, noted that there is rising pressure on pricing as customers are negotiating contracts stating that introduction of AI functions are improving productivity, automation, and the resultant cost benefits should be passed to them.

Outcome-Based Pricing for AI Work

Even as IT companies are moving towards offering outcome-based pricing for pure play AI work, only a minority of such deals were fully outcome-priced during FY26, Ranjan said. Most deals still have a blend of time and material (T&M), fixed price, and a few limited value-based elements.

In certain deals, the pricing pressure would be as high as a 20 to 30 percent reduction due to clients negotiating, Ranjan explained. Pricing is also inconsistent across the industry with different vendors delivering projects at different profit margins, giving a larger room for negotiation.

Impact on Revenue Growth and Margins

Growth has been slow to come by for Indian IT companies amid macroeconomic uncertainties, West Asia war, geopolitical tensions, US trade tariffs, and now AI disruption. Industry analysts, however, said operating margins for the Tier-I IT firms such as Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro, and Tech Mahindra may hold as of FY26, but that will create a false sense of stability driven by other levers like improving utilisation rate, benefits of depreciating rupee, reduced headcount, and more.

In FY26, AI was still being used for clients to run pilots, build initial use cases. Pricing discussions were exploratory. But, as FY27 begins, and once AI is embedded into production workflows, everything will become measurable. Productivity becomes quantifiable, making it the new baseline for pricing, industry analysts noted.

Major IT Firms' Response

HCLTech's CEO and MD C Vijayakumar was among the first IT industry leaders to highlight the issue of legacy IT companies needing to rework business models as AI changes cost structures. During the Q3 earnings conference in January, Vijayakumar said that AI-led work is reshaping deal structures, with customers increasingly seeking operating model transformation across software development life cycles and data lifecycle management.

He added that such engagements typically command higher pricing than conventional outsourcing deals. HCLTech had reported $3 billion in net new bookings during the quarter, with AI, agentic systems, and physical AI now embedded in a large share of new transactions.

Link to Hiring Plans

As business models are evolving for IT companies, project delivery models and hiring strategies are changing simultaneously. IT revenue growth is no longer linked to headcount addition. For instance, Tech Mahindra CEO Mohit Joshi said that the company is looking to increase productivity for fixed-price programs and will be utilising its existing talent pool and benched employees rather than hiring fresh talent or backfilling attrition.

TCS decided to cut about 2 percent or close to 12,000 jobs in FY26 globally. While TCS had earlier shared that it is going to hire around 42,000 freshers in FY26, the company then said it will focus on doubling down on AI-native fresher or trainee hiring.

TCS is also changing its hiring strategy overall by onboarding lateral talent with future-ready skills in areas of cyber security, enterprise solutions, cloud, advisory, and consulting talent.

Two Types of Hiring

Constellation Research's Wang said there are going to be two types of hiring - experienced talent and AI-native freshers. In an era where expertise is a commodity, services firms will pay for greater experience. However, we will also need AI-native talent, and these folks will gradually replace the mid-level folks today in non-AI roles.