Bangalore: As most of the clients from U.S. and Europe tightening their IT budget and seek to renegotiate the existing contracts, Indian IT firms such as TCS, Infosys, Wipro and HCL are forced to sign new outsourcing contracts at 15-20 percent lower billing rates than last year, reported The Economic Times.

Reeling under huge revenue gap resulting into a decline in IT budget, customers such as Visa, Best Buy, Applied Materials, Nissan, Citibank and Bank of America are asking Indian service providers to reduce the billing rates.

According to Sabyasachi S Sathyaprasad of Sathyaprasad Consulting, an outsourcing advisory firm, the biggest fall has happened for high-end services such as consulting, from over $60 per hour earlier to around $40-45 on an average. He anticipates that the rates could fall by up to 20 percent in the coming few months, but should get stabilized after that.

Since September last year, top five Indian tech firms negotiated almost $1.5 billion worth of outsourcing contracts at around 15 percent lower rates. "Some customers are asking us to let go on our high margins and take offshore projects for as low as $15-20 hourly billing rates," said a senior official of an India-based offshore provider.

The EBITDA margins ( a measure of operating profit) of top Indian IT firms is expected to decline by up to half over the next three years as these companies move more projects to Indian in order to cut the cost of operation. HCL's EBITDA is likely to decline by half from 22.2 percent in 2008 to 11.2 percent in 2011. Similarly, India's top IT vendor TCS could see its margin down from around 26 percent last year to 18.2 percent over next three years, while Wipro's EBITDA may decline from 20.1 percent to 13.5 percent by 2011.

Research firm IDC has recently said that fierce competition and price pressure will be the name of the game in the next 12 months, and vendors will do their best to keep the businesses with their key clients ongoing.