Artificial intelligence (AI) is beginning to change the commercial model of India's $315-billion IT services industry, with Tata Consultancy Services (TCS) saying productivity gains from AI are helping lower clients' technology spending even as companies bet on larger transformation programmes to offset the impact.
The comments from India's largest IT services exporter come at a time when the sector is grappling with weak discretionary spending, delayed decision-making by clients and growing pressure to pass AI-driven efficiency gains back to customers. Analysts expect these themes to dominate the Q1 earnings season for major IT firms including Infosys, HCLTech and Wipro.
Responding to an analyst's question on whether AI-led productivity was resulting in revenue deflation, TCS Chief Executive Officer and Managing Director K Krithivasan said the company was already sharing productivity benefits with customers during contract renewals and, in some cases, proactively identifying opportunities to reduce clients' technology spending.
"It is difficult to quantify. As the projects come up for renewal, we find opportunities along with our clients to harness productivity benefits... We also have seen in many places whenever our associates proactively look at opportunities and go to our customers and say where we can reduce the overall spend," Krithivasan said.
He said the company expects the savings generated through AI to create opportunities for larger business transformation programmes over time rather than reduce the overall technology opportunity.
The management's comments mirror a broader shift taking place across the global IT services industry. HFS Research said enterprises are increasingly reopening outsourcing contracts within 24 months of signing them, instead of waiting until renewal, as AI-driven productivity gains force a rethink of traditional effort-based pricing models. According to the research firm, clients are seeking to capture AI-led efficiencies sooner, particularly in large, long-term contracts.
HFS Research also said enterprise buyers are increasingly looking for outcome-based pricing rather than paying for effort, even though most existing contracts continue to be structured around traditional billing models.
Gartner said in a research in June that enterprise buyers are entering a more complex phase of AI procurement as technology providers increasingly adopt different commercial models for AI services. Instead of relying on traditional software licensing, vendors are offering combinations of subscription fees, consumption-based pricing linked to usage, and outcome-based models tied to business results.
According to the research firm, this is making it more difficult for chief information officers (CIOs) to compare offerings and estimate the long-term cost of AI deployments.
Gartner said organisations should evaluate AI investments based on measurable business outcomes such as productivity improvements, faster delivery and operational efficiency, rather than focusing only on technology costs, as AI adoption expands across enterprise IT.
