Why IT Giants TCS, Infosys, LTIMindtree Are Reluctant to Give Pay Hikes

Employees of India's fifth-largest IT services company, LTIMindtree, are in for a shock this annual wage hike season. Amid a slew of low single-digit hikes rolled out by peers like Infosys and Tata Consultancy Services (TCS), LTIMindtree plans to ask its senior staff to sit for a competency test. 

According to a Mint report, for the first time, the IT services firm will require project leads, managers, and lead architects to take a multiple-choice test on coding and math. The test results will then be weighed alongside their project completion performance for the year. 

The move is reportedly part of a new framework called "My Career My Growth," introduced last year. Initially, it applied only to senior executives, but it has now been expanded to include a larger portion of the firm's 86,800-strong workforce. 

Last year, the Mumbai-based company gave an average annual hike of around 4% to its employees in October, a delay of about a month from its usual cycle. 

During the third-quarter earnings call, the firm's outgoing CEO and MD, Debashis Chatterjee, said that this hike led to a 170-basis-point decline in its EBIT margin, dropping from 15.5% in the September quarter to 13.8% by the end of December. 

"While we expect to improve margins in Q4, absorbing the full impact of wage hikes may take a bit longer in the current growth environment," Chatterjee told analysts. 

Slowing Wage Growth in the IT Sector

It's not just LTIMindtree employees—most of the workforce in the IT and IT services industry is facing the prospect of flat or slow wage growth. 

According to the EY Future of Pay 2025 report, released on February 27, salary increments in the IT sector are expected to decline from 9.8% in 2024 to 9.6% in 2025. Meanwhile, IT-enabled services will see a moderation from 9.2% in 2024 to 9% in 2025.  The report attributes this decline to automation and cost optimisation. 

While the overall industry hike may still be in the high single digits, individual companies are offering lower increments. 

Infosys employees received an average hike of 5%-7% this year, lower than FY24's reported 7%-9% and significantly below the 10.5% hike given in FY22, when the post-COVID boom propelled IT services growth. 

TCS plans to provide an average hike of 4%-8% at the end of March, lower than the 9% hike it gave in FY24, according to The Economic Times. 

Wipro implemented merit-based salary hikes in September for FY25, with top performers receiving an average 8% increase, as per ET.  According to a MoneyControl report, most HCLTech employees received increments of only 1-2% in FY25.

Why Are IT Giants Tightening Their Purse Strings?

According to the EY report, the IT sector is expected to see moderate growth of 6%-7% in 2025, impacted by global economic conditions, technological advancements, and challenges in AI and cybersecurity regulations. 

The Indian IT sector is struggling with lower discretionary spending by global firms. A report by Kotak Institutional Equities warns of downside risks to industry revenue growth, potentially reducing it by 1-2%. The sector is expected to grow 6-7% in FY26 and 8-9% in FY27, but cost-conscious clients and pressure to generate savings from generative AI may limit margin expansion. 

The report also noted that large IT companies are heavily reliant on market recovery to return to normal growth rates. However, unlike past cycles, they may not benefit from share gains, outsourcing, or spending shifts. Instead, they face revenue deflation risks from generative AI, forcing them to offer end-to-end services or expand into new areas to offset potential losses. 

While mega deals may provide some relief, pipeline commentary suggests a limited growth outlook for FY26, the report said.