The productivity gap: Can Indian IT firms catch up with global tech giants?

India’s top IT firms—TCS, Infosys, and HCL—have reported a notable rise in revenue per employee in the last financial year. TCS recorded US$ 49,902, Infosys posted US$ 60,164, and HCL had an RPE of US$ 61,388. Compared to FY22, this marks a growth of 4.91% for TCS, 5.79% for Infosys, and 1.02% for HCL, reflecting improved productivity and operational efficiency across these companies.

An industry expert notes that the slowdown in hiring over the past two years has led to a rise in revenue per employee. Experts also point to increased adoption of automation, AI tools, and a surge in third-party software license sales as key contributing factors.

Revenue Per Employee (RPE) is an important metric that measures how much revenue a company generates for each of its employees over a given period. It reflects the productivity and efficiency of the workforce. A higher RPE suggests that the company is earning more with fewer employees, often indicating strong operational performance and effective resource utilization.

Analysts point out that the rise in revenue per employee (RPE) is primarily driven by higher employee utilization rates and increased overall productivity, rather than pricing gains.

After a phase of aggressive post-pandemic hiring, leading IT services firms are now optimizing their workforce and taking a more measured approach to recruitment. 

Industry experts indicate that revenue per employee (RPE) in some IT firms has reverted to pre-pandemic FY19 levels and is expected to improve further as generative AI adoption accelerates internally. They also point out that, beyond enhanced utilization, companies are increasingly embracing automation and platform-based models to enable non-linear revenue growth. Notably, nearly half of Infosys’ growth in revenue per billable employee in FY24 stemmed solely from improved employee utilization.

Traditionally, Indian IT firms were perceived to have lower RPE than their global IT counterparts. For instance, Google has a revenue per employee of US$ 19,71,009 for the first quarter of 2025. Microsoft has a revenue per employee of US$ 12,23,732. In the case of IBM, revenue per employee is at around US$ 205,804 for the same period (data from CSI Market).

This is due to several reasons. Indian IT firms (e.g., TCS, Infosys, Wipro) predominantly follow a service-based model — offering IT outsourcing, software services, system integration, and BPO. Revenue from custom software services or IT maintenance is often billed by hours or fixed project costs — directly tied to manpower.

In contrast, Google and Microsoft are product- and IP-driven companies. Their core revenue comes from highly scalable products like ads, cloud platforms, software licenses, and subscriptions, which require less incremental human input once built.

Moreover, Indian IT companies historically built their success on cost arbitrage — offering skilled IT services at lower wage costs. Virat Bahri, Joint Director, TPCI, comments, “Indian firms typically employ a pyramid structure: large numbers of entry-level engineers supporting a smaller layer of experienced professionals.” This enables cost efficiency but reduces average revenue contribution per employee, especially compared to firms with fewer, highly specialized staff.

Furthermore, Indian firms mostly cater to offshore clients (especially in the US and Europe), where they charge lower rates for support and development services. Global tech companies operate in premium consumer and enterprise segments, often charging top-dollar for their solutions.

Finally, product firms are early adopters of AI/ML, which enables them to deliver higher value with fewer people. Indian IT firms are still transitioning to AI-led services and platforms — though this is changing rapidly as firms move up the value chain.

India’s IT industry is poised for a significant productivity surge of 43% to 45% over the next five years, driven by the integration of generative artificial intelligence (GenAI), according to a report released by EY India earlier this year. The consulting firm attributes this projected growth to the rapid adoption of GenAI by IT firms and the shift of client projects from pilot phases to full-scale implementation.

However, it is important that Indian IT industry treads carefully in its approach to developing AI products to enhance its value proposition and revenue gains. Infosys co-founder Nandan Nilekani commented at a Meta AI summit in Bengaluru, Nilekani said: “Our goal should not be to build one more LLM. Let the big boys in the (Silicon) Valley do it, spending billions of dollars. We will use it to create synthetic data, build small language models quickly, and train them using appropriate data. It’s all about data. How do we create the infrastructure for collecting the right data and make India the use case capital of AI globally where we actually deploy, add scale and speed in a frugal manner.”

To improve their revenue per employee (RPE) and close the gap with global tech giants, Indian IT firms must accelerate their shift from traditional, manpower-intensive service models to more scalable, technology-led offerings. This includes deeper integration of generative AI, automation, and platform-based solutions that decouple revenue growth from headcount expansion. Crucially, in the AI era, Indian IT firms have a real opportunity to move beyond services and start building scalable products, SaaS platforms, and domain-specific AI tools—leveraging their deep client relationships, sectoral expertise, and access to engineering talent. By focusing on product innovation and IP creation, firms can unlock non-linear growth, enhance productivity, and significantly lift RPE. The future lies in blending service excellence with product-led strategies to drive global competitiveness and long-term value.