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 hiring 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.

AI impacting the job sector

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.

AI to change jobs not take them away

However, disagreeing with this sentiment, Arun Kumar Parameswaran, EVP & Managing Director - Sales & Distribution, Salesforce - South Asia, called such incidents a part of the technological shift in the IT sector as more companies lean towards agentic AI.

“There is always skepticism with technological shifts coming in. Every time there is a shift, the first reaction is that oh, we are going to lose jobs. But every one of these shifts has changed, how we work moved us to a higher value platform, created more opportunities than losses. I have no doubts in my mind that AI is going to have that similar impact. “ said Parameswaran.

Taking the example of coders, Parameswaran said that AI will allow software developers to focus their time and attention on figuring out how to code something interesting.

“I am looking at all these students these days. They are not writing a single line of code. They are literally cutting and pasting from ChatGPT and various tools but they are spending more time thinking about how the code will interact with the customer and how to delight the customer for which earlier they did not have the time,” said Parameswaran.

It may be noted that Salesforce laid off over 1,000 employees in February this year while simultaneously hiring new workers to sell its new AI products.

Seasonality of hiring

Meanwhile, another analyst, who spoke on anonymity, said the low headcount could be attributed to global developments such as tariffs. According to the analyst, since the majority of the company’s business relates to the US, the economic slowdown in the US is affecting the IT company as well. Another factor at play is seasonality as Q4 is historically lower in terms of employee addition and pick up compared to around Q2 or Q3.

Published on April 15, 2025