AI Is Changing How India’s IT Companies Get Paid
For decades, the Indian IT services industry has largely operated around familiar commercial models: time and material (T&M) and fixed-price contracts.
Clients paid for the people involved, the hours worked, or the completion of a defined project.
Artificial intelligence is beginning to change that equation.
Indian IT companies are seeing an early shift towards outcome-based pricing, where clients increasingly want to pay for measurable business results rather than simply the effort or number of people deployed.
It is still a relatively small part of the overall IT services business, but the direction of change is worth watching.
From hours worked to results delivered
The difference between the traditional and emerging models is fairly straightforward.
Under a T&M arrangement, a client essentially pays for the resources and time required to deliver a project.
A fixed-price contract puts a predetermined price on a defined scope of work.
An outcome-based contract takes a different approach.
The commercial arrangement is linked to what the technology or service actually delivers.
That could mean lower costs, fewer customer-service tickets, faster resolution times, higher productivity or other measurable improvements.
For clients, this changes the fundamental question from:
“How many people are working on this project?”
to:
“What result am I getting from this investment?”
AI is making this question increasingly relevant.
Why AI is pushing the industry towards outcome-based pricing
AI is changing the economics of software development and business process delivery.
An AI-enabled team can potentially accomplish work that previously required significantly more human effort. Agentic AI, automation platforms and AI-powered tools can handle parts of workflows that were traditionally performed by large teams.
That creates a problem for the traditional billing model.
If fewer people and fewer hours are required to deliver the same—or better—result, billing purely on effort becomes harder to justify.
At the same time, enterprises are scrutinising AI investments carefully.
Companies want to understand whether spending on AI is producing measurable improvements rather than simply adding another technology layer.
This makes outcome-based contracts particularly relevant for smaller, focused AI engagements where the results can be measured within a relatively short period.
TCS sees movement towards outcome-based commitments
Tata Consultancy Services has said that it continues to work with multiple engagement models, including output-commitment based, outcome-based, fixed-price and T&M arrangements.
However, TCS COO Aarthi Subramanian indicated that the company is seeing more movement towards outcome-based commitments, particularly in areas involving agentic Global Business Services (GBS).
This does not mean T&M is disappearing.
Traditional contracts remain important, particularly for large and complex technology engagements.
Instead, the industry appears to be moving towards a combination of different commercial structures depending on the nature of the work.
The numbers are still relatively small
The shift is visible, but it is nowhere close to replacing traditional IT contracts.
Coforge, for example, says outcome-based contracts account for approximately 6–7% of its revenue on a run-rate basis.
Cognizant has reported that around 45% of its BPO contracts are now being signed under outcome-based commercial models.
These figures are significant, but they also highlight an important point: the broader IT services industry is still predominantly based on traditional T&M and fixed-price arrangements.
Many companies have not yet disclosed detailed revenue splits between the different models.
So, rather than describing outcome-based pricing as the new standard, it is more accurate to view it as an emerging component of the IT services business.
The future may not be purely outcome-based
One interesting aspect of this transition is that the industry may not move directly from T&M to outcome-based contracts.
Instead, a hybrid model could become more common.
HfS Research President Saurabh Gupta described a structure involving three components:
Subscription + Consumption + Performance
For example, an enterprise could pay a subscription fee for an AI platform or software tool.
It could then pay based on consumption, such as usage time or AI tokens consumed.
Finally, part of the contract could be linked to measurable business performance.
This approach reflects the different economics of AI-based services.
When a platform or AI agent performs a large portion of the work, traditional headcount-based billing becomes less relevant. Consumption and measurable outcomes become easier ways to structure the commercial relationship.
Tech Mahindra provides an example
Tech Mahindra recently won a healthcare-sector deal where the commercial arrangement is tied to measurable outcomes.
The targets include:
Around 40% fewer tickets
20% lower mean time to resolution
30–35% reduction in technical debt
Significant productivity improvement during the contract period
This is fundamentally different from simply committing a certain number of employees to a project.
The service provider has more responsibility for delivering the promised improvement.
That also means more risk.
If the expected outcome is not achieved, the economics of the contract can be affected.
Not every company is seeing the shift yet
The transition is not happening at the same speed across the industry.
Infosys, for instance, has said that while clients are showing stronger interest and discussions around outcome-based models are increasing, these contracts have not yet become a major part of its business activity.
This makes sense.
Outcome-based pricing requires both the client and service provider to agree on exactly what constitutes a successful outcome.
That can be difficult when projects are large, complex or dependent on several factors outside the service provider's control.
Defining the metrics, collecting reliable data and assigning responsibility can become complicated.
The risk is shifting towards the service provider
There is another important implication.
Traditional T&M contracts place much of the delivery risk with the client.
If the project requires more hours or additional resources, the economics can often accommodate that through the billing structure.
Outcome-based contracts are different.
The service provider has more “skin in the game.”
If an IT company promises a reduction in costs, resolution times or customer-service volumes, it has to take greater responsibility for achieving those results.
This requires stronger operational capabilities, domain expertise, technology infrastructure and the ability to measure outcomes accurately.
Not every service provider may be equally prepared for that transition.
From staff augmentation to human + AI teams
The change could eventually extend beyond pricing.
Mayank Verma, Global Head of Data and AI at Xebia, has argued that the industry needs to move away from traditional staff augmentation towards a pod model, where AI agents work alongside human employees.
That idea captures the broader transformation taking place.
The future IT delivery team may not simply consist of 20, 50 or 100 people.
Instead, it could involve a smaller number of specialists working alongside AI agents and automated systems.
Clients may then care less about the number of people assigned to a project and more about the output produced by the combined human-and-AI team.
What this means for India's IT services industry
The shift towards outcome-based pricing could have significant implications for Indian IT companies.
For years, the industry's growth has been closely connected to adding technology talent, expanding delivery teams and increasing the scale of services provided to global clients.
AI challenges that model.
If AI allows the same amount of work to be delivered with fewer people, revenue growth cannot depend solely on increasing headcount.
IT companies may increasingly need to demonstrate business value through productivity improvements, automation and measurable outcomes.
That could eventually change not only how IT companies charge, but also how they organise their workforce, design contracts and measure productivity.
For now, traditional T&M and fixed-price models remain dominant.
But the increasing number of AI engagements tied to consumption, subscriptions and measurable outcomes suggests that the commercial model itself is becoming part of the AI transformation.
The important question is no longer simply how much AI can automate.
It is also how the value created by that automation should be measured—and who should be paid for it.
#ArtificialIntelligence #AI #IndianIT #ITServices #TCS #Infosys #TechMahindra #Coforge #Cognizant #GenerativeAI #AgenticAI #DigitalTransformation #Technology #BusinessStrategy #FutureOfWork