India’s IT giants slash consultant costs amid industry shift

BENGALURU, INDIA—India’s leading IT firms, including Tata Consultancy Services (TCS), Infosys, HCLTech, and Wipro, are significantly reducing their use of temporary consultants. 

According to a Mint report, this move marks a notable shift in the traditional outsourcing model, which has long been a cornerstone of India’s IT services industry. 

Historically, these companies relied on subcontractors, especially for overseas projects where clients preferred on-site presence. However, subcontractor expenses as a percentage of revenue reached their lowest levels since December 2019, indicating a new trend in the industry.

Driving factors behind the shift

The reduction in consultant hiring is largely driven by subdued client spending and a shift towards remote work models. This change is expected to help boost company margins, as consultants are typically more expensive than permanent employees. 

Despite this, India’s top IT companies have not yet returned to their pre-pandemic profit margins. For instance, TCS’s subcontractor costs have dropped to 4% of its operational revenue, down from 7.9% in late 2019. 

Similarly, HCLTech and Wipro have seen reductions in subcontractor expenses to 12.6% and 11.3%, respectively.

Peter Bendor Samuel, CEO of Everest Group, explained that this trend “is driven by the ongoing contraction of discretionary spending.”

“As this spend has been reduced, the need for contractors also is reduced,” Samuel added.

This sentiment is echoed by a Mumbai-based analyst who noted that post-COVID, clients are more open to having work done offshore, reducing the need for on-site subcontractors.

Strategic workforce adjustments

In response to these changes, IT companies are focusing on upskilling their workforce and reducing their dependence on external consultants. 

TCS, for example, increased its employee count significantly, growing from approximately 446,675 employees in December 2019 to about 606,998 in the latest quarter. 

At the same time, Infosys increased its employee count from 243,454 to 315,332, HCLTech from 149,173 to 219,401, and Wipro from 187,318 to 234,391.

This strategy not only helps in cost management but also aligns with the industry’s shift towards remote and offshore work.

Future outlook and challenges

While the reduction in consultant costs is expected to stabilize, the IT services sector continues to face challenges such as high attrition rates and global economic uncertainties. 

TCS CFO Samir Seksaria noted, “This year, we believe subcontractor cost has bottomed out or will remain stable around this level.” 

As the industry adapts to these changes, the focus will likely remain on enhancing internal capabilities and optimizing operational efficiency.