AI drives productivity, but fails to spark broad based growth in IT

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AI is becoming increasingly embedded in service delivery, operations, software engineering, and business transformation programs, with providers reporting higher levels of AI-related demand and stronger disclosure of AI business metrics

By Sanjana B

Updated - October 26, 2026 at 09:36 PM. | Bengaluru

While AI is becoming visible in both client demand and delivery productivity, it is still difficult to establish how much incremental industry revenue AI is creating

Even as AI related revenue gained traction in Q2 FY27, India’s IT services industry has yet to enter a broad based growth cycle, with clients prioritising cost savings, productivity and measurable returns over discretionary technology spending.

HCLTech’s advanced AI revenue stood at $219 million, up 28.4 per cent quarter-on-quarter (q-o-q) and 78 per cent year-on-year (y-o-y) in constant currency (CC) terms, outpacing overall revenue growth of 2.3 per cent q-o-q and 2.6 per cent y-o-y in CC terms. TCS’ annualised AI revenue reached $3.1 billion, accounting for more than 10 per cent of its total revenue, while AI contributed 10.5 per cent of Infosys’ revenue.

Praveen Bhadada, CEO & Managing Director, Neovay Global, explained that AI is replacing work as much as adding it and is now a real line of business, not a pilot.

“Infosys’ AI revenue rose by more than $120 million in the quarter while total revenue rose about $63 million, so traditional work shrank. The industry is being repriced by AI. Clients are signing large, long contracts, but these deals are built around cost savings and productivity. Firms are earning more revenue per employee, hiring cautiously and protecting margins through efficiency rather than price,” he said.

Scaled deployment

Biswajit Maity, Sr Principal Analyst at Gartner, added that another notable theme emerging this quarter is the growing shift from AI experimentation to scaled deployment.

AI is becoming increasingly embedded in service delivery, operations, software engineering, and business transformation programs, with providers reporting higher levels of AI related demand and stronger disclosure of AI business metrics. This aligns with broader market trends where AI is reshaping technology spending priorities, delivery models, and commercial structures.

“Enterprises remain highly value conscious. Buyers continue to seek productivity gains, business outcomes, and commercial flexibility, leading providers to emphasise platform-led delivery, automation, and AI enabled services as mechanisms to improve efficiency while maintaining profitability. These trends suggest the industry is moving into the next phase of AI adoption, where scalable deployment and measurable business outcomes are becoming more important than innovation narratives alone,” he said.

While the IT services sector is stabilising, it has not entered a broad based growth cycle. According to Biswajeet Mahapatra, Principal Analyst, Forrester, client spending continues to favour AI, data, cloud modernisation, cybersecurity, automation, vendor consolidation, and initiatives with clearer cost or business outcomes, while discretionary technology spending remains cautious.

While AI is becoming visible in both client demand and delivery productivity, it is still difficult to establish how much incremental industry revenue AI is creating, he added.

“Much of the emerging opportunity sits at the intersection of AI, cloud, data, application modernisation, engineering and managed services, which makes it difficult to distinguish genuinely new AI expenditure from technology spending being redirected toward AI-enabled programs,” Mahapatra said.

At the same time, AI is improving delivery productivity by reducing the effort associated with software development, testing, migration and support activities. AI can create new transformation revenue while simultaneously reducing revenue associated with labour-intensive traditional services. Currently, the stronger evidence is around AI-driven demand and productivity improvement rather than a clear AI-driven acceleration in aggregate industry revenue.

Published on October 26, 2026

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