AI Transition Could Challenge Up to 25% of Indian IT Services Firms, Says Nasscom Chief
India’s technology services sector is undergoing a shift toward artificial intelligence and outcome-based delivery, even as underlying demand, future signings, and order pipelines continue to show strength. However, according to National Association of Software and Services Companies (Nasscom) President Rajesh Nambiar, nearly a quarter of existing IT services firms may struggle to navigate this industry-wide transformation.
What Happened
In an interview with businessline, Nasscom President Rajesh Nambiar stated that an estimated 20 to 25 percent of technology services firms might not successfully transition from traditional Full Time Equivalent (FTE) staffing frameworks to models centered on AI, enhanced productivity, and direct business outcomes.
Recent industry metrics highlight this structural change. Technology services revenue recorded a 6.1 percent increase, whereas headcount rose by only 2.3 percent. This gap signifies a departure from the sector’s historical model where revenue expansion moved in tandem with staff hiring.
Key Highlights
- Model Transition: Between 20 and 25 percent of IT services companies could struggle to adapt to AI- and outcome-based business engagements.
- Decoupling of Headcount and Growth: Revenue expanded by 6.1 percent while employee additions grew by 2.3 percent, breaking the long-standing linear relationship between revenue and hiring.
- Robust Pipelines: Deal pipelines, future signings, and order books are strengthening across the sector despite market concerns regarding technology investments.
- Shift to Outcome-Based Billing: Traditional billing based on headcount is giving way to contracts evaluated on the business value and outcomes generated.
- Firm Positioning: Mid-size and larger enterprises are comparatively better placed due to ongoing investments in AI capabilities and operational adjustments.
Why This Matters
The transition fundamentally alters the value proposition of Indian IT services. Billing clients solely for headcount is being replaced by outcome-driven engagements. This change is expected to create workforce churn and apply significant commercial pressure on companies that rely heavily on traditional staff augmentation. While the broader industry is expected to survive and adapt, individual companies that fail to adopt AI-led practices risk falling behind.
What to Watch Next
Market observers will monitor how service providers navigate workforce restructuring and the ongoing move toward value-based commercial agreements. Attention will also center on whether smaller and mid-tier firms can build viable AI capabilities to keep pace with larger peers in securing future deal pipelines.
Frequently Asked Questions
What percentage of IT services firms might struggle with the AI transition?
According to Nasscom President Rajesh Nambiar, an estimated 20 to 25 percent of technology services firms may not successfully complete the crossover to an AI-led model.
How are IT billing models changing?
Traditional billing based on full-time headcount is shifting toward outcome-based arrangements where vendors are compensated based on the business value and productivity they deliver.
Is overall client demand for IT services slowing down?
Nasscom notes that underlying demand remains strong, with notable improvements in deal pipelines, future contract signings, and order books across the industry.
Source: Reporting based on an interview by businessline with Nasscom President Rajesh Nambiar.