Rapid GCC growth reshapes India's outsourcing industry

Economic Times

6 days ago

ETtech Recent exponential growth of global capability centres (GCC) in India may have come at the expense of the people-led tech outsourcing industry – the country's biggest services exports over the past three decades and unquestionable change agents for once-sleepy towns such as Bengaluru, Pune, and Hyderabad.MNCs, which are setting up these GCCs or expanding existing facilities, are also the top spenders of tech for the $280-billion listed Indian pureplay. The increasing insourcing of core tech tasks – especially the top end, high-value work - may be leading to one of reasons for the current rot in the outsourcing industry, marked by a protracted slowdown and now mass-layoffs.
For FY24, GCCs' grew at a rate of 40% even as the top five Indian IT companies posted negative to sub-5% growth for the same period and reported similar numbers for fiscal 2025, as per estimates by Nasscom and the industry. For the IT industry the subdued numbers continued in FY25. While the official numbers are yet to be out for GCCs, the growth is expected to be in double digits.The Indian technology services industry which operates in a pyramid structure by hiring more entry-level coders is now witnessing a foundational shift with AI, experts said.
'The pyramid is collapsing. GCCs are rising. AI is automating the middle. Pricing is shifting from effort to outcomes, and that means a full-stack transformation—not just of how services are delivered, but how they're sold, priced, and measured,' said Saurabh Gupta, president at US-based technology research and consultancy firm HFS Research.
TCS Jobs
Earlier this week, India's largest software exporter Tata Consultancy Services (TCS) announced that it is going to lay off around 2% or 12,200 people in the current fiscal as it grapples with low growth amid a challenging macro situation and AI-led disruption, sending shockwaves in the industry. According to an HFS data survey with 200-plus enterprises, over 65% enterprises expect to relocate at least 10% FTEs (full-time equivalent - which measures the work based on employees work hours) from third parties to GCCs.GCCs have seen tremendous growth in the past few years as multinationals sought to leverage India's skilled talent and cost advantages. Estimates suggest that two new GCCs opened every week last year, increasing the total to 1,700 centres employing nearly 2 million people.Yugal Joshi, partner at another US-based Everest Group, said that the accelerating pace of GCCs in India is having an impact on the net demand for service providers, specifically in segments such as banking, financial services and insurance (BFSI) where these clients have scaled their GCCs in India. As per data by ANSR, over 50 banking GCCs run more than 90 centers in India employing over 180,000 professionals.
Incidentally, BFSI contributes around anywhere between 30% and 50% of the revenue share for most Indian IT companies. Almost all large multinational banks and financial services firms have huge GCCs in India. In fact, firms like JPMorgan Chase, Wells Fargo have more employees in India than a mid-tier IT firm, with 50,000 people, representing roughly 20% of its global workforce. The IT industry employed around 5.4 million professionals as of FY24, while GCCs employed nearly 1.9 million people. Net addition of talent by GCCs in FY24 stood at 90,000 and surpassed 100,000 in FY25.Last year, GCCs hired a total of around 110,000 people, while India's top IT companies grew their headcount by a mere 13,500 in FY25, after a reduction of 64,000 in FY24.GCCs, which typically function as back office operations for large overseas companies, established their presence more firmly in India post COVID.
According to Ramkumar Ramamoorthy, partner at Catalincs, a tech growth advisory firm, GCCs have publicly stated that their focus will largely be on driving innovation using digital technologies, as they believe they are core to their business and they should own these capabilities. 'IT services companies which were once in denial about the impact of GCCs are today proactively forming crack teams to work alongside them to jointly shape and participate in their transformation and innovation agenda,' he says alluding to the investments and acquisitions by IT firms in the GCC space.'Large IT services companies have been stuck in a low single-digit, organic revenue growth cycle for three years in a row, " he said. Prominent companies collectively generated approximately $20 billion in free cash flow last year. 'The real question we should be asking is, are these companies reinvesting enough back into the business to rewire their business, operating and financial models for accelerated growth?''With a significant portion of the revenue coming from 'run the business' as opposed to 'change the business', from time-and-material (T&M) contracts as opposed to outcome or risk-reward based contracts, from pass-through revenue from product license sale as opposed to newer service opportunities such as cyber security, interactive and platforms, companies need to take bold, unconventional decisions to force-cannibalize revenue, where appropriate, and invest their way out. If they don't act now, we risk looking back in regret for having missed a generational opportunity,' Ramamoorthy added.
The GCC Tilt As per government data, the industry had estimated revenues of $254 billion, marking a 3.8% YoY growth in FY24 (excluding e-commerce). Of this, GCCs contributed to $64.6 billion in the same period, industry body Nasscom numbers showed.Last year, the government's Economic Survey also pointed out that the share of IT in India's services exports fell two percentage points over three years, while indicating an expansion of "other business services" which include GCCs of multinationals.Further, the growth has fastened at a time when the AI-led disruption is aiding more innovation and R&D work by multinationals based out of India as GCCs, which are no longer just back-office factories. Key leadership of many of these centres is based out of India making them key decision making destinations now.Experts say, the 12,000 workforce layoffs announced by the largest Indian IT major TCS on Sunday is just the beginning as the Indian players are yet to get return on investments from the large AI investments made. With AI, many companies including GCCs and smaller tech firms are getting higher output with the same people. Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. Jane St: How an options trader smelt a rat when others raised a toast
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