Impact of AI on Indian IT Wage Dynamics

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Deferred wage hikes and low headcount in the IT sector may indicate structural realignment of the sector owing to AI and global developments like tariff, say analysts. Tata Consultancy Services (TCS) while announcing its Q4 results, deferred wage hikes, citing “uncertain business environment” and reported a headcount of only 625.

According to Sanchit Vir Gogia, Chief Analyst & CEO at Greyhound Research, global developments like tariffs may have added pressure, but the real story lies in the margin fragility and changing client expectations.

“Large Indian IT firms are facing diminishing returns on headcount-driven growth as buyers demand automation-led cost savings and shorter delivery cycles. The 625-person hiring figure at TCS is not symbolic of sectoral stagnation — it’s a manifestation of deliberate, cautious reallocation of effort toward fewer but higher-skilled roles. Wage hikes are no longer tied to tenure or pyramid structures — they now depend on strategic alignment and value-added capability,” said Gogia.

Referring to a Greyhound Pulse 2025 – CIO Compensation Outlook, he said that 61 per cent of enterprise tech leaders globally are reassigning the budget from traditional IT delivery to AI-infused automation and business outcomes. This shift is forcing Tier-1 Indian IT vendors to reassess not only hiring volumes but also compensation strategies.

Further, 74 per cent of CIOs globally said that they expect at least 25 per cent savings from AI adoption in application maintenance and infrastructure support by Q4FY25. For example, an European retail client working with a Tier-1 Indian IT firm deferred wage revisions due to a margin review on all Application Managed Services contracts by the client’s new CFO.

“The review revealed redundant effort in backend ticket handling — much of which could be automated using AI tools. The client renegotiated for a smaller team and performance-linked pricing, leading the vendor to delay wage hike cycles and reduce new hires to preserve margins,” said Gogia.

Greyhound also found that 68 per cent of enterprise tech leaders are delaying contract renewals specifically to factor in AI-led delivery models in turn impacting staffing, budgets, and appraisal cycles. Further, the analyst company reported that CIOs globally expect AI to reduce delivery costs by at least 30 per cent in areas like infrastructure monitoring, helpdesk, and routine development and operations by FY26. These expectations are leading clients to proactively renegotiate pricing, which directly impacts salary pools and mid-year hike cycles. Vendors are now prioritising reinvestment into upskilling over wage inflation — particularly in roles adjacent to cloud, security, and AI engineering.

As per Greyhound Pulse 2025, there is a 21 per cent annual increase in hiring by Global Capability Centres, while hiring by traditional Indian IT vendors fell by 38 per cent.

As quoted in The Hindu Business Line, in an article authored by Vallari Sanzgiri published on April 15, 2025.

Additional comments by Greyhound Research analyst:

Wage Hikes at TCS Delayed Again — More Than Just Tariffs?

Greyhound Flashpoint – TCS’s decision to delay wage hikes and restrict hiring is not merely a reaction to tariff risks or global uncertainties — it reflects a structural realignment. According to Greyhound Pulse 2025 – CIO Compensation Outlook, 61% of enterprise tech leaders globally are reassigning budget from traditional IT delivery to AI-infused automation and business outcomes. This shift is forcing Tier-1 Indian IT vendors to reassess not only hiring volumes but also compensation strategies. Wage hikes are no longer tied to tenure or pyramid structures — they now depend on strategic alignment and value-added capability.

Greyhound Standpoint – According to Greyhound Research, global developments like tariffs may have added pressure, but the real story lies in margin fragility and changing client expectations. Large Indian IT firms are facing diminishing returns on headcount-driven growth as buyers demand automation-led cost savings and shorter delivery cycles. The 625-person hiring figure at TCS is not symbolic of sectoral stagnation — it’s a manifestation of deliberate, cautious reallocation of effort toward fewer but higher-skilled roles. Wage hikes have become highly selective, tied more closely to capability density than tenure or loyalty.

Greyhound Pulse Insights – In our Greyhound Pulse 2025 – Sector Pulse: Indian IT Services, 74% of CIOs globally said they expect at least 25% savings from AI adoption in application maintenance and infrastructure support by Q4 FY25. These expectations are cascading into vendor negotiations, placing pressure on Indian IT service providers to reduce overall costs. As AI offsets manual labour in L1-L2 support, test automation, and low-code builds, the business case for blanket compensation increments weakens — even for well-performing firms like TCS.

Greyhound Fieldnotes – Per a recent Greyhound Fieldnote from a European retail client working with a Tier-1 Indian IT firm, wage revisions were deferred not due to tariffs but because the client’s new CFO initiated a margin review on all AMS (Application Managed Services) contracts. The review revealed redundant effort in backend ticket handling — much of which could be automated using AI tools. As a result, the client renegotiated for a smaller team and performance-linked pricing, leading the vendor to delay wage hike cycles and reduce new hires to preserve margins.

How Are AI and Tariffs Reshaping Wage Expectations?

Greyhound Flashpoint – Both AI and tariffs are materially impacting wage dynamics in Indian IT — but AI is the more lasting force. Greyhound Pulse 2025 – CIO Automation Strategy Tracker shows that 68% of enterprise tech leaders are delaying contract renewals specifically to factor in AI-led delivery models. This uncertainty on deal shape and size is trickling down into staffing, budgets, and appraisal cycles. Tariffs add a layer of unpredictability — but AI is what’s permanently altering cost structures and delivery assumptions.

Greyhound Standpoint – According to Greyhound Research, AI is having a more transformational impact on compensation models than tariffs. While tariff policies ebb and flow, AI is fundamentally shifting the architecture of IT services — from FTE-led delivery to composite teams of humans and agents. This change in delivery economics forces firms to stop thinking in terms of pyramid-based wage hikes and start thinking in terms of skill-based compensation. In this transition, wage increases will slow — not because the sector is failing, but because the definition of value is changing.

Greyhound Pulse Insights – As per our Greyhound Pulse 2025 – CIO Automation Strategy Tracker, 70% of CIOs globally now expect AI to reduce delivery costs by at least 30% in areas like infrastructure monitoring, helpdesk, and routine DevOps by FY26. These expectations are leading clients to proactively renegotiate pricing, which directly impacts salary pools and mid-year hike cycles. Vendors are now prioritising reinvestment into upskilling over wage inflation — particularly in roles adjacent to cloud, security, and AI engineering.

Greyhound Fieldnotes – Per a recent Greyhound Fieldnote from a Fortune 100 healthcare client in the U.S., the enterprise paused a renewal with their Indian IT vendor due to internal success in automating L1 support using an LLM-based chatbot. As a result, the client cut scope by 40%, forcing the vendor to defer wage revisions across its AMS vertical. The friction wasn’t about tariffs — it was about being outpaced by the client’s own AI initiatives.

Are Indian IT Wage Delays a Sign of Saturation?

Greyhound Flashpoint – This isn’t saturation — it’s segmentation. The Indian IT sector is not shrinking; it’s evolving. Our Greyhound Pulse 2025 – Global Capability Centre Tracker shows a 21% YoY increase in hiring by GCCs (Global Capability Centres), while hiring by traditional Indian IT vendors fell by 38%. Work isn’t disappearing — it’s relocating, reshaping, and rewarding new skill sets. Wage hike delays are not signs of irrelevance — they are the growing pains of an industry redefining its own value proposition.

Greyhound Standpoint – According to Greyhound Research, the wage hike delays post-COVID do not indicate saturation — they reflect a maturing and stratifying IT services economy. Low-complexity delivery work is being automated or absorbed by in-house teams, while high-complexity, AI-native work is commanding premiums. Indian IT firms are no longer competing on scale alone — they’re being judged on adaptability, vertical depth, and platform integration. Wage cycles are being restructured to match this shift, rewarding roles that align with emerging enterprise architectures and de-emphasising those stuck in legacy stacks.

Greyhound Pulse Insights – Our Greyhound Pulse 2025 – GCC Tracker highlights that 59% of enterprises globally now prefer building AI-driven capabilities in captive GCCs rather than outsourcing to external service providers. This is leading to uneven growth — with high-skill wage inflation in GCCs and compensation stagnation in traditional offshore delivery. The Indian IT sector isn’t stagnant — it’s transitioning, and compensation policies are adapting in real-time to this fragmentation.

Greyhound Fieldnotes – Per a recent Greyhound Fieldnote from a BFSI client in the Middle East, the firm transitioned 60% of its IT support to a new GCC in Bengaluru focused on AI-led operational transformation. The vendor was retained for niche integration work but asked to rebid at significantly lower rates. As a result, the vendor shelved its wage hike cycle and froze hiring in the region. The pressure was internal — the client was evolving faster than the vendor.

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