India’s largest information technology services companies are increasingly relying on subcontractors as stricter US immigration rules and rising demand for artificial intelligence (AI) projects reshape their workforce strategies. In the September quarter of fiscal 2027, Tata Consultancy Services (TCS), Wipro, Tech Mahindra and HCLTech all reported higher year-on-year subcontracting expenditure. TCS recorded the sharpest increase, with spending rising nearly 52% to ₹4,954 crore, while Tech Mahindra’s expenditure increased 28% to ₹1,847 crore.
The trend marks six consecutive quarters of rising subcontracting expenditure following multi-year lows in fiscal 2025. IT services companies are using external specialists and locally available workers to meet project deadlines without depending as heavily on sending employees to the United States. AI-related projects are creating demand for specialised skills that may be difficult to recruit quickly, while visa uncertainty makes overseas staffing more complicated. However, subcontractors often cost more than permanent employees, creating a trade-off between delivery flexibility and profitability.
Key Takeaways
- TCS: Subcontracting expenditure rose nearly 52% year-on-year to ₹4,954 crore in the September quarter.
- Tech Mahindra: Spending increased 28% to ₹1,847 crore.
- Wipro: Subcontracting expenditure increased 6% to ₹2,811 crore.
- HCLTech: Spending rose 4% to ₹2,493 crore.
- Six-quarter trend: All four firms have reported higher subcontracting costs for six consecutive quarters following the low-spending period in fiscal 2025.
- Main drivers: US visa uncertainty, the need for local hiring and growing demand for specialised AI skills.
- Business impact: External staffing helps companies deliver projects quickly but can put pressure on gross margins.
How Much Are India’s Major IT Firms Spending on Subcontractors?
The latest quarterly results show that subcontracting has become an important part of workforce planning at India’s largest IT services companies. Although all four firms reported increases, the scale of the change differed significantly.
| Company | Q2 FY27 subcontracting expenditure | Year-on-year increase | Previous-year expenditure |
|---|---|---|---|
| TCS | ₹4,954 crore | Nearly 52% | ₹3,248 crore |
| Tech Mahindra | ₹1,847 crore | 28% | ₹1,443 crore |
| Wipro | ₹2,811 crore | 6% | Approximately ₹2,652 crore |
| HCLTech | ₹2,493 crore | 4% | Approximately ₹2,397 crore |
Source: Reported September-quarter FY27 results and industry coverage. Figures are rounded where necessary.
TCS recorded the largest absolute expenditure among the four companies, while its year-on-year increase was also the highest. The company attributed the higher spending partly to visa-related pressures and short-term mismatches between the supply of specialised talent and project demand.
Tech Mahindra also reported a substantial increase, reflecting the need to staff projects quickly. Wipro and HCLTech recorded smaller percentage increases, although their expenditure remained significant in absolute terms.
These figures represent total subcontracting expenditure, not the amount spent exclusively on AI projects or US-based workers. Companies use subcontractors for different types of work, and their disclosures do not necessarily separate every expense by geography, skill category or client programme.
Why US Visa Rules Are Changing Hiring Strategies
Indian IT services companies have historically used a combination of offshore delivery from India and on-site staffing at client locations in the United States.
Under this model, routine development, maintenance and support work can be performed from India, while employees travel to client offices for activities that require close collaboration, specialised implementation or direct customer interaction.
US immigration restrictions can make this arrangement more expensive and difficult to manage. Changes to H-1B visa requirements, higher costs associated with certain new petitions and uncertainty around employment-based immigration programmes have encouraged companies to reconsider how they staff US projects.
The financial implications extend beyond the visa application itself. Companies must also consider travel, relocation, compliance, employee availability and the risk of delays if a specialist cannot be deployed when required.
For projects with tight deadlines, subcontractors who already have the necessary work authorisation can offer a faster alternative. They may be based in the United States or another delivery location, allowing the IT services provider to meet a client’s immediate requirements without waiting for a permanent employee to relocate.
However, this flexibility comes at a cost. External consultants and subcontractors can charge a premium for their availability, particularly when specialised skills are in short supply.
The H-1B fee issue requires careful interpretation
The NewsBytes report cites a $100,000 fee for certain new H-1B applications as part of the pressure on Indian IT companies. The precise applicability of immigration fees depends on the relevant rules, petition category and legal developments in force at the time.
The broader business issue is that uncertainty and higher costs around overseas staffing can make local hiring and subcontracting more attractive for particular assignments. The effect will vary across companies according to their workforce composition, visa requirements and delivery models.
AI Projects Are Creating an Urgent Need for Specialised Talent
Immigration policy is only part of the explanation. The rapid expansion of AI-related work is also changing the way IT services companies recruit and deploy people.
Businesses are increasingly seeking help with AI implementation, data engineering, cloud migration, software modernisation, automation and the integration of AI agents into existing systems. These projects often require a mix of software engineering, machine learning, cybersecurity, data management and industry-specific expertise.
An IT services company may win a project that requires specialists immediately but does not yet justify hiring a large permanent team. Subcontracting allows the company to bring in the required expertise for a defined period.
Aditya Narayan Mishra, managing director and chief executive of CIEL HR, said H-1B pressures have played a role in the shift towards local talent. Industry executives have also pointed to the need for faster project delivery as clients seek to accelerate AI adoption.
The urgency is understandable. Companies that delay AI implementation risk falling behind competitors, while service providers must deliver solutions within the timelines agreed with clients.
External staffing can bridge a temporary skills gap, particularly when a project requires a narrow area of expertise that is not readily available within the existing workforce.
Why AI demand does not always mean higher margins
AI projects can create new revenue opportunities, but they do not automatically translate into better profitability for service providers.
Clients increasingly expect technology companies to deliver measurable productivity improvements. They may also negotiate lower prices when automation reduces the number of hours required to complete a task.
At the same time, implementing AI systems can require expensive specialists, new tools, infrastructure and additional testing. Companies may need to pay more to secure the talent needed to complete projects on schedule.
This creates a complicated economic equation: an AI contract may generate revenue, but the cost of deploying the required workforce can reduce the profit earned from it.
For IT services companies, the objective is to build internal AI capabilities over time while using subcontractors selectively when demand exceeds available capacity.
How Subcontracting Affects Profit Margins
Subcontracting gives companies flexibility, but it can increase the cost of delivering services. Permanent employees generally represent a more predictable workforce expense, while external specialists may charge higher rates for short-term assignments or urgent deployments.
TCS has acknowledged that higher subcontractor and third-party expenses affected its gross margin in the September quarter. The cost increase illustrates how workforce decisions can influence profitability even when customer demand remains strong.
The effect depends on how much of the additional expense can be passed on to customers. If contracts allow a company to charge more for specialised services, the margin impact may be limited. If pricing is fixed, the provider may have to absorb the extra cost.
| Factor | Potential benefit | Potential drawback |
|---|---|---|
| Faster access to specialists | Helps deliver projects on time | May require premium rates |
| Flexible workforce size | Reduces the need for permanent hiring during uncertain demand | Can increase short-term delivery costs |
| Local hiring and deployment | Reduces dependence on overseas transfers | Local talent may be expensive or difficult to recruit |
| AI project expertise | Enables companies to pursue specialised contracts | Skills shortages can increase staffing expenses |
| Greater subcontractor use | Helps manage short-term demand spikes | Can put pressure on gross margins |
Companies must also manage quality, confidentiality, cybersecurity and accountability when external workers have access to client systems. A larger subcontracting workforce can increase the complexity of project management, particularly when assignments involve sensitive data or regulated industries.
Are Indian IT Companies Moving Away From Permanent Hiring?
The rise in subcontracting does not necessarily mean Indian IT firms are abandoning permanent employment. Instead, it suggests that workforce planning is becoming more flexible and closely linked to project requirements.
Large technology services companies continue to recruit fresh graduates, experienced engineers and specialists. Permanent employees help build institutional knowledge, maintain client relationships and develop capabilities that can be reused across multiple projects.
Subcontractors are more useful when companies need a specific skill quickly, face a temporary increase in demand or require staff in a particular location. The balance between permanent employees and external workers can change as business conditions evolve.
A company may also use subcontracting while it trains its existing workforce in AI technologies or develops an internal talent pipeline. Over time, it may bring more of that work in-house if demand becomes predictable and the required skills are widely available.
The longer-term workforce model is therefore likely to combine permanent employees, local hiring, offshore delivery centres and external specialists rather than rely on one approach alone.
Local Hiring and Nearshoring Gain Importance
Indian IT firms have been expanding their local hiring and delivery capabilities in the United States and other markets for several years. They have also invested in nearshore centres in locations such as Mexico and parts of Latin America, where teams can serve North American clients in compatible time zones.
This approach can reduce reliance on international employee transfers while allowing service providers to work more closely with customers.
Local hiring can improve responsiveness and reduce certain immigration-related risks, but it does not automatically lower costs. Salaries and benefits in the United States can be considerably higher than in India, and competition for specialised AI engineers can be intense.
Nearshoring offers another option, although companies must consider local labour markets, infrastructure, compliance and the complexity of coordinating distributed teams.
The right mix will differ according to the type of work. Routine software maintenance may be delivered efficiently from India, while a complex AI implementation or a client-facing transformation project may require specialists closer to the customer.
What the Trend Means for India’s IT Industry
The rise in subcontracting reflects a broader transition in India’s IT services business. Companies are moving from workforce models built around predictable staffing needs towards delivery systems that must adapt quickly to changing technology, immigration rules and customer expectations.
AI is creating opportunities in modernisation, data, automation and new software applications. At the same time, it is changing the economics of traditional services, where customers increasingly expect providers to do more with fewer billable hours.
This makes workforce flexibility valuable, but it also makes cost control more difficult. Service providers must ensure that the additional expense of external specialists is justified by project revenue, delivery speed or access to capabilities they cannot easily build internally.
For employees, the trend could increase demand for specialised skills and locally deployable talent. For subcontractors, it may create opportunities to work on AI implementation and enterprise transformation projects. For investors, the key question is whether higher spending supports future revenue growth or becomes a persistent drag on margins.
The Bigger Picture
Indian IT companies are adjusting their staffing models as AI demand accelerates and US immigration uncertainty makes some traditional deployment methods more complicated. Subcontracting provides a practical way to access scarce skills and meet client deadlines, but it can raise costs at a time when customers are demanding productivity improvements and more competitive pricing.
The six-quarter rise in subcontracting expenditure shows that this is more than a temporary change in one company’s hiring strategy. The long-term outcome will depend on whether firms can develop sufficient internal AI expertise, expand local delivery capabilities and use external workers efficiently without allowing staffing costs to erode profitability.
Looking Ahead
Investors will watch the next few quarters for signs that subcontracting expenditure is stabilising and that higher staffing costs are translating into revenue growth. The balance between local hiring, offshore delivery and external specialists will be particularly important as companies respond to new immigration rules and customers seek faster AI deployments. Changes in gross margins and management commentary on workforce strategy should help clarify whether the increased expenditure is temporary or becoming a structural feature of the business.
For the industry, the challenge is to build a workforce model that can respond quickly to new technology demand while remaining financially sustainable. Subcontractors can fill immediate gaps, but companies will also need to invest in training, internal AI capabilities and long-term talent development. The firms that manage these competing priorities effectively will be better positioned to pursue AI opportunities without sacrificing operational efficiency.
Frequently Asked Questions
1. Why are Indian IT firms increasing subcontracting?
Companies are responding to US visa uncertainty, the need for local talent and growing demand for specialised AI skills. Subcontractors can often be deployed faster than permanent employees hired or relocated for a specific project.
2. Which company recorded the biggest increase in subcontracting costs?
TCS reported the largest increase among the four companies covered, with expenditure rising nearly 52% year-on-year to ₹4,954 crore in the September quarter of FY27.
3. How much did Wipro and HCLTech spend on subcontractors?
Wipro reported ₹2,811 crore in subcontracting expenditure, up 6% year-on-year. HCLTech reported ₹2,493 crore, an increase of 4%.
4. Does increased subcontracting mean IT companies are hiring fewer permanent employees?
Not necessarily. Subcontracting can complement permanent hiring by filling short-term skills gaps or meeting urgent project requirements. The overall effect depends on each company’s recruitment plans and business demand.
5. How does subcontracting affect profitability?
External specialists can cost more than permanent employees, increasing the expense of delivering projects. If companies cannot recover these costs through pricing or productivity improvements, gross and operating margins may come under pressure.
6. Will AI demand continue to increase subcontracting?
Demand for specialised AI skills could keep subcontracting elevated in the near term. However, the trend will also depend on internal training, local hiring, offshore delivery and how quickly companies develop their own AI capabilities.
Get the day’s top stories in your inbox
One concise email. No spam, unsubscribe anytime.
