Indian IT firms raise subcontracting costs on visa curbs

So far, all four Tier 1 IT firms that have reported second-quarter FY27 results have shown year-on-year increases in subcontracting expense, extending a six-quarter run of elevated spending after multi-year lows in FY25. TCS posted the sharpest increase, with subcontractor costs jumping nearly 52% to ₹4,954 crore from ₹3,248 crore a year earlier. Tech Mahindra’s spending rose 28% to ₹1,847 crore, while Wipro and HCLTech reported smaller increases of 6% and 4%, respectively, to ₹2,811 crore and ₹2,493 crore.

The latest jump comes as the Trump administration’s $100,000 fee for new H-1B applications makes it more expensive to send staff to the US, historically the key onshore delivery route for Indian IT firms. Companies are also contending with pressure around permanent labour certification, or PERM, which has reduced the attractiveness of the long-term green-card path for Indian workers, according to staffing executives. That is nudging firms toward locally available talent and contractors with existing work authorisations, which can be deployed faster but usually at a higher cost than full-time staff.

For clients, the economics are straightforward: the AI cycle is compressing timelines. Executives and recruiters say some customers that had delayed technology projects are now pushing for quicker delivery so they do not fall behind on AI adoption, forcing service providers to source specialised skills they do not have in sufficient supply. In the near term, that supports execution and revenue conversion, but it also raises the cost of servicing each dollar of work.

TCS chief financial officer Samir Seksaria said subcontractor spending in the September quarter reflected both visa-related constraints and short-term skill mismatches. Kotak Institutional Equities said heavier use of subcontractors for local delivery would materially weigh on near-term margins, though a greater share of offshore delivery could ease some of that pressure over time. Seksaria also said the increase in subcontractors and third-party expenses was directly visible in gross margins.

The market implication is that investors are likely to watch margin commentary more closely than headline growth as earnings season progresses. Firms with stronger offshore leverage and better internal talent pipelines may be able to absorb the pressure more effectively, while those more dependent on local delivery could see profitability lag even if demand improves. The broad trade-off is becoming clearer: faster fulfilment and stronger AI-related execution on one side, lower operating leverage on the other.

That leaves the sector facing a familiar but more expensive adjustment. If visa curbs persist and AI demand keeps pulling work forward, subcontracting may remain elevated rather than cyclical, forcing Indian IT companies to rethink delivery models, hiring strategy and margin guidance into the next fiscal year.