Quick Take
- Subcontractor costs rose to 9.6% of revenue at LTIMindtree in the June quarter, up from 8.3% in March.
- rran the highest ratio in the group, at 15.5% of revenue.
- India has about 420,000 AI professionals against demand of 600,000 to 650,000.
Indian IT firms spent more on subcontractors in the June quarter as they rented specialist talent to handle swinging demand for AI work.
A Kotak Institutional Equities note showed subcontracting costs rose as a share of revenue at most Indian IT firms.
Companies pay a premium for short-term staff. It helps them manage unpredictable AI demand and protect margins.
How much did subcontractor costs rise?
Subcontractor costs rose the most at LTIMindtree. The ratio climbed to 9.6% of revenue in the June quarter, from 8.3% in March.
Persistent Systems ran the highest ratio in the group. Its subcontracting cost reached 15.5% of revenue, up from 15.3%.
At Wipro, the ratio rose to 11.7% from 11.5%. For Infosys, it moved to 8.7% from 8.5%.
The ratio at HCLTech held flat at 14.8% of revenue. Both TCS and Tech Mahindra saw small declines.
The rise is not new. Over the last 10 quarters, the Kotak note shows this cost has climbed 10 to 20 basis points on average each quarter.
Here is the subcontracting cost as a share of revenue, ranked highest to lowest:
| Company | June quarter | March quarter |
|---|---|---|
| Persistent Systems | 15.5% | 15.3% |
| HCLTech | 14.8% | 14.8% |
| Wipro | 11.7% | 11.5% |
| LTIMindtree | 9.6% | 8.3% |
| Infosys | 8.7% | 8.5% |
Why are Indian IT firms using more subcontractors?
Indian IT firms use more subcontractors because AI demand is hard to predict. They avoid adding permanent staff they may not need.
Phil Fersht, chief executive of HFS Research, said providers cannot keep costly talent on the bench. Subcontracting becomes the pressure valve.
The skills needed also keep changing. Fersht said firms are not yet sure what their long-term AI talent needs will be.
Uncertain demand shapes the choice too. Fersht said hiring a contractor for six or 12 months can carry less risk than adding a permanent worker who may sit idle later.
Client pressure adds to it. Firms feel pushed to start work faster, so they stay wary of rebuilding large permanent teams.
The shift also follows less reliance on H-1B visa workers. Data from the note show a gap between the skills inside IT firms and the skills clients now want.
Outside specialists usually cost more than a firm’s own staff. That also raises pressure on existing employees to deliver project work.
Demand is growing for AI engineering, data engineering, cybersecurity and cloud modernisation. Firms also want staff who can help clients deploy AI systems.
What does the AI talent gap look like?
TeamLease Digital puts India’s AI workforce at about 420,000, against demand of 600,000 to 650,000. That is a shortfall of up to 230,000 people.
Neeti Sharma, chief executive of TeamLease Digital, gave those figures. The gap keeps pay high for scarce AI skills.
A wide gap makes hiring slow and costly. So firms rent the skill for a project instead of hiring for years.
What this means for you: If you run a startup, expect to fight big IT firms for the same AI, data and cloud talent. Renting specialists per project may cost less than hiring them full-time.
StartupFeed Insight
Here is the plain reading of the numbers. India has about 420,000 AI professionals but needs up to 650,000. That gap of 230,000 is why big IT firms rent talent instead of hiring it. For a founder, this is both a warning and a chance. The warning: senior AI pay will stay high through 2026, because the pool is too small. On the upside, skilled contractors are now easy to find, since IT firms keep a large flexible bench. Expect the subcontracting ratio at top IT firms to stay above 10% for the rest of FY27.
By Avinash Mishra, Business Correspondent
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