Policy uncertainty, AI-led disruption slowing IT contract renewals

Indian IT services companies are taking three to five months longer to renew contracts with clients, as macroeconomic uncertainty, particularly in the US, and the need for artificial intelligence (AI) capabilities are delaying decision-making, according to analysts.

While contracts are typically renewed within six to eight months, the analysts ET spoke with said they now take anywhere between nine to fifteen months.

“Globally, macroeconomic policies are very volatile right now, and these changes impact both the IT services providers and their clients,” said Sumit Pokharna, vice president for information technology at Kotak Securities. “Be it the tariffs which will impact clients’ profitability or the state of the US economy, where it is uncertain if there will be a recession or inflation will shoot up.”


Sectors in which revenue is more sensitive to changes in global markets and policies, for instance, manufacturing, oil and gas and retail, companies are taking longer to renew their contracts compared with the banking and enterprise tech sectors, in which budgets still have room for discretionary spending.

“Today, if you win a deal at a certain pricing, and then there is a change in the policy, then the entire game changes. So, clients are confused whether or not to invest in IT services,” Pokharna said, adding that policy uncertainty is adding to the existing slowdown in discretionary spending.

Gaurav Vasu, chief executive of Bengaluru-based research firm UnearthInsight, said, “Product engineering hasn’t slowed down, so enterprise tech companies are among those which are close to the older deal renewal cycles.”

According to Vasu, with US President Donald Trump’s administration hitting the manufacturing sector the hardest, and with old economy industries like oil and gas responding to the volatile scenario, deal renewals in these sectors could take longer than 12 months, while public sector deals are almost entirely under evaluation.

Analysts said boardroom conversations have also turned towards including AI or Agentic AI-based capabilities in their offerings, but the evolving nature of what outcomes that can provide for clients is further delaying decision-making.

According to Forrester's principal analyst Biswajeet Mahapatra, with the cost of software licences going up by 5-10% annually, clients are more selective about their projects and what AI-based cost optimisation or outcome it can give businesses.

“The full potential of AI is still unfolding, with new use cases emerging and the promise of reshaping how businesses operate. Organisations continue to learn and adapt as the technology evolves each day,” said Siddhartha Tipnis, partner and technology sector leader at Deloitte India. “As companies reassess the scope of AI-driven services, they must also evaluate the cost–benefit equation. Unlocking AI’s capabilities often requires significant updates to infrastructure, making strategic investment decisions essential.”

With discretionary spending slowing down, and as firms move towards outcome-based pricing, the question of how to scale up these agentic/AI solutions on a multi-vertical, multi-region basis comes with a delayed time frame to renew these contracts, said experts.