Subcontractor spends continue to rise as Indian IT battles visa challenges, AI

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This marks the sixth straight quarter of significant growth in such spending, following multi-year lows in FY25

By Rohan Das

Updated - October 19, 2026 at 07:00 AM.

IT service firms typically limit subcontractors’ spends during challenging environments | Photo Credit: REUTERS

Amidst persistent immigration-related challenges, the Indian IT dependency on subcontractors and external consultants on-site continues to rise. 

All four Tier 1 IT service firms that have announced their second quarter FY27 results so far have reported year-on-year spikes in subcontracting expenditure, with growth ranging from 4 per cent to as much as 52 per cent.

This marks the sixth straight quarter of significant growth in such spending, following multi-year lows in FY25. 

The increase has gathered particular pace after the Trump administration’ s move to impose a $100,000 fee for new H-1B application, a key route through which these firms used to delay which for long had been the major route for onshore talent.

Varying Spends

TCS reported the highest spike in subcontracting spends at ₹4,954 crore, up nearly 52 per cent from ₹3,248 crore in the same quarter last year. For Tech Mahindra it grew by 28 per cent at ₹1,847 crore, up from ₹1,443 crore. Wipro and HCLtech saw a relatively modest increase going up 6 per cent to ₹2,811 crore and 4 per cent to ₹2,493 crore respectively. 

Aditya Narayan Mishra — MD and CEO of CIEL HR, suggests that disruptions in H1B and the more recent Permanent Labor Certification (PERM) programme have caused a change in the delivery strategy and pushed them towards locally available talent. 

“H-1B pressures have surely played a role. The green-card route was also an attractive long-term option for people from India but it has also become less attractive now. Companies will have to hire local talent,” he said. 

Additional Cost

Neeti Sharma, CEO of TeamLease Digital notes that subcontractors who already have the necessary work authorisations can be deployed more quickly by IT majors, making them a practical alternative for meeting immediate client requirements. 

As they usually come at a premium when compared to regular employees, IT service firms typically limit subcontractors’ spends during challenging environments. Nevertheless, the immediate need is outweighing the additional cost involved. 

Mishra suggests that with AI advancements, some clients who had earlier deferred tech projects now fear falling behind in adoption and are asking IT service partners to deliver projects quickly

“The clients are now looking for a quick turnaround. So the service firms need specialised resources, which they do not have adequately pushing them to subcontractors,” he said

Higher Usage

In its September quarter earnings, TCS Chief Financial Officer Samir Seksaria, CFO, noted that TCS’s spike in subcontractor spends can be attributed to both visa issues as well as short term ‘demand supply skill mismatches’. 

Meanwhile, a note from Kotak Institutional Equities suggests that the increasing utilisation of subcontractors for localised delivery will materially impact the short term margins. 

“Higher subcontractor usage may pressure near-term costs, while greater offshore delivery could offset some of the pressure over time,” it added. 

Seksaria also admitted that these expenses have impacted gross margins in Q2. “The increase in subcontractors and third-party expenses directly reflects on the gross margin,” he said.

Published on October 19, 2026

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