AI Creates Pricing Pressure For Indian IT Firms

Artificial Intelligence (AI) and generative AI (GenAI) are making an increasing impact on Indian IT services firms’ deal pipeline. All top four Indian IT firms have indicated that most projects now have an AI component embedded in it. The management of these companies said conversations with customers are revolved around implementation of AI applications to improve efficiency and ensure cost savings. More and more clients are asking for AI-led applications that can be integrated with their existing projects.

This is a significant development given that AI is yet to emerge as a money-spinner for IT services companies, despite the hype associated with the technology. Now, companies have started seeing a shift in this trend. As more projects get embedded with AI, two other developments have come to the fore. Firstly, clients are asking IT firms to pass on the benefits of efficiency improvement to them. It means if there is ‘x’ dollar of cost savings attained due to AI applications, customers are asking IT firms to give certain percentage of that cost savings to them. It is, thus, creating pricing pressure for the companies.

Project pricing is getting revised at the time of renewal. Secondly, more use of AI applications in projects is creating upselling opportunities for IT firms. So, while AI is creating pricing pressure, it is also giving rise to more business for them.

During fourth quarter of FY25, the top four IT firms- TCS, Infosys, HCLTech & Wipro- has seen robust deal pipeline despite tepid revenue growth. This pipeline indicates that technology spending is happening despite all the macroeconomic uncertainties in the global economy. As many projects get embedded with AI, it is likely that Indian IT industry will see greater revenue share coming from AI in the coming quarters. However, there is catch to this possibility. Due to the Trump tariffs, enterprises are in a ‘wait and watch’ mode. They want to get clarity over future growth before committing their spending on new technology areas.

Promoters of companies have already said that discretionary spend by clients is expected to be tepid in the near-term. It has to be seen how AI and GenAI solutions are seen in the eyes of clients. If the client feels that AI will bring in cost savings, then that kind of investment is likely to get a go ahead. However, if it is about creating a new platform through AI, then those investments may be deferred given the business uncertainty. In this perspective, FY26 may not boom year for the global IT industry.

Because reciprocal tariffs imposed by the US will take time to settle down. It is certain to take a toll of the global growth. As global growth stutters, enterprises will hold back new technology spend. Indian IT firms, therefore, have to adjust with the evolving situation. Revenue growth outlook given by major players has already factored in this reality. Overall, AI is expected to create pricing pressure for enterprises in the short-run but will throw open more business opportunities in the medium to long-term.