How Re-Baselining and Self-Cannibalisation is Redefining Indian IT Sector in 2025

Introduction

We’ve at all times been pleased with our tech giants like TCS, Infosys, Wipro, and so forth ruling the worldwide stage? Properly, in 2025, issues are shifting and persons are worries that what’s in retailer for these corporations after tariff imposition by the US. I’ve already written a weblog publish the affect of reciprocal tariff on Indian IT shares, you possibly can learn it right here. On this publish, I’ll speak particularly about two primary headwinds that our IT corporations are presently going through.

There are represented by two fancy-sounding phrases, re-baselining and self-cannibalisation.

Don’t fear in regards to the jargon, I’ll declutter it for you. However what’s fascinating about them is that, if our IT corporations can care for it over time, I believe they’ll make it huge once more. We solely typically say that “our IT corporations are going through issues as a consequence of AI and now as a consequence of tariffs? However what these issues particularly are, no physique can clearly spell out.

On this weblog publish, I’ll discuss these two points the the IT corporations are going through. I’ve tried to assemble as a lot perspective as I can by studying about these two points since previous few days.

So, this publish is not only jargon; it’s about how our IT sector is rewriting its personal story. I believe, it’s a narrative value studying about.

Re-Baselining – The Huge Offers Getting a Makeover

So, what’s re-baselining?

Take for instance that you’re a gross sales man in one among out high IT corporations. You’ve signed a giant Rs 500 crore deal in 2023 with a shopper within the U.S. to deal with their tech methods. Two years after (in 2025), they name you up and say, “Issues have modified. We’d like extra AI stuff, and we additionally have to downsize the the order valued to Rs 300 crore?”

That’s re-baselining. It’s mainly renegotiating offers that had been locked in earlier. Why it’s accomplished? As a result of the shoppers at the moment are saying that the world isn’t the identical anymore and so they want higher costs. The surge in re-baselining of the outdated contracts have gotten extra seen in 2025.

What’s the purpose, why shoppers are going for re-baselining?

World economic system is trying weak and unstable. Motive? U.S. tariffs below Trump 2.0. Therefore, shoppers overseas are getting extra value aware. They’re not simply asking for cheaper providers; they need smarter deliverables. Now they wish to make use of Generative AI (GenAI) that may write code or automate duties for them.

I learn in ET that large-cap IT companies may see development drop to 4.5%–6% in FY26. It’s not even near the ten%–12% development we used to count on from our IT corporations.

Although I’ll additionally say that It’s not all gloomy and unhappy, although. Our IT corporations are powerful, they’ve survived recessions and US linked issued prior to now. They’ve additionally crossed the Y2K panic.

However this re-baselining wave is simply too powerful to navigate or our IT corporations can hand this too? For certain, it’s forcing them to rethink all the pieces. They’re again on the drafting board planning tips on how to worth the offers to how briskly they will practice individuals in new tech.

I’ll provide you with an instance.

A buddy of mine works at a mid-sized IT agency in Bengaluru. Final yr, their greatest shopper, a retail chain, requested them to redo a five-year contract midway by. The shopper wished AI chatbots added to their customer support system, one thing not even within the unique plan.

My buddy’s staff needed to be taught new instruments, and someway preserve the shopper pleased with out shedding cash. That’s additionally re-baselining in motion. For the IT corporations, it’s very anxious.

However the high administration won’t bee taking a look at it solely as a “sob story.” I believe, they’re realising that this new pattern can also be pushing them so as to add a brand new skill-set to their offer-basket.

Self-Cannibalisation (Self Hurt)

Now, let’s discuss self-cannibalisation. I do know it sounds too dramatic however that is one other phrases that’s getting used with respect to the current state of affairs with the IT corporations.

In IT phrases, it means our corporations are constructing new tech, like AI or cloud options, that’s killing off their outdated, trusty companies. For instance, for a few years prior to now Indian IT corporations made billions by providing low-cost coding pushed options to US shoppers. These options had been primarily supplied for or fixing outdated methods for international shoppers. That was the bread and butter of our IT corporations. However now, out IT corporations are solely pushing shoppers to modify to shiny new platforms that want fewer individuals and fewer time. That is self-cannibalisation, consuming into ones personal enterprise.

Take an organization like Infosys.

They’re pouring cash into AI instruments that may automate total chunks of labor, the stuff that 1000’s of engineers used to do manually. Final quarter, I noticed a report saying high IT companies reduce over 16,000 jobs. Why? As a result of an AI can now deal with what 10 coders did earlier than.

It’s a bizarre spot to be in. On one hand, the businesses are pleased with the brand new improvements. On the opposite, their very own improvements are shrinking the very mannequin that made these corporations well-known.

Self-cannibalisation is like that second if you improve from a Nokia 3310 to a smartphone. You miss the outdated reliability, however you possibly can’t deny the brand new energy. Even within the car business, the EV wave is like self-cannibalising the ICE engine automobiles.

I used to be chatting with an outdated school buddy who’s now a high supervisor in Wipro. He informed me how they misplaced a piece of their legacy upkeep enterprise (over the previous 10 years) as a result of they themselves satisfied the shopper to maneuver to a cloud primarily based system. “We’re mainly consuming our personal earnings to remain forward,” he mentioned, half-laughing, half-worried.

That’s the factor. It’s a gamble, but when we don’t do it, another person will.

The place We Stand in 2025

So, what’s the scene like proper now?

Actually, it’s sort of neither worse nor nice.

• On one facet, there’s excellent news. The Nifty IT Index is up 141% within the final 5-Years. However alternatively, the identical index is down -7.3% in 2025 alone. Hyderabad alone clocked Rs 2.68 lakh crore in IT exports in FY24. Increasingly more GenAI offers are popping up all over the place. I noticed a stat that mentioned AI-related tasks are doubling in firm pipelines. We’re nonetheless a power to reckon with, little doubt, however the factor is, the choices are altering from coder-driven options to GenAI primarily based options.
• The flip facet of the coin just isn’t all rosy. Hiring’s is down by 14% which is the bottom in years. Progress isn’t what it was. Smaller IT companies are struggling to maintain up with the large boys who can afford to guess huge on AI. Purchasers have turn into pickier too, they need cutting-edge options however at enormous reductions. It’s like they need a VW on the worth of a Maruti.

And with the U.S. economic system performing unpredictable, everybody’s on edge.

I believe what’s fascinating, and a bit scary, is how that is testing the resilience of out IT corporations. I believe, our Pharma corporations too are going to face the identical warmth quickly.

We’re used to jugaads. We’ll finally discover essentially the most worth for cash answer the shoppers.

Our IT sector has dodged bullets earlier than. They did that in 2008 crash or the H-1B visa situation. However this time, it’s not nearly surviving; it’s about reinventing too.

Re-baselining is forcing our IT corporations to renegotiate their place on the planet. Whereas self-cannibalisation is making them rewrite their very own playbook.

Conclusion

So, the place are our IT corporations going to go from right here? I’d say it’s time for them to sink-or-swim.

Firms are scrambling to coach individuals. 1000’s of workers at TCS are studying AI expertise as we converse. Partnerships with world tech leaders are popping up. There’s a buzz about India changing into an AI hub, not only a back-office hub.

But it surely’s not going to be a straightforward. Smaller gamers may get left behind, and even the giants should stability these new bets with their outdated commitments.

We’ve obtained the expertise, over 1.5 million IT people. However are we shifting quick sufficient? Can we flip these challenges into a brand new golden period, or will we get caught reminiscing in regards to the glory days?

Re-baselining and self-cannibalisation are the instant hurdles that our IT corporations are going through as of in the present day. I believe, they’re good sufficient to search out their place on this altering market. However we as buyers, ought to give them time to stabilise themselves. If we predict them to provide some excellent news within the subsequent quarter, I don’t suppose it’ll occurs so quick.

For the second, I’ll proceed to help them for subsequent many quarters. I’m not promoting until heavens begin falling. Furthermore, my publicity to IT just isn’t too small however restricted. I believe, I can drag it for one more couple of years for certain.