Opinion TCS layoffs: The traditional IT model is showing cracks

For decades, TCS and others drove global digital transformation. They built scalable workforces to help companies unlock cost efficiencies; and this efficiency has a direction. It reduces labour demand in areas where productivity gains are realised. With the march of AI, new jobs may emerge elsewhere, in new value chains and domains. But today, AI-led automation is targeting the core of IT services itself.

This is the headline risk. Yet, more insight lies in understanding a deeper structural issue — the labour pool model that has underpinned Indian IT.

Five million-plus workers with broadly fungible skills represent the strength of Indian IT. Companies tap into this pool project by project, scaling up for high-margin digital transformation contracts, then releasing talent when the work is done. Workers rejoin the pool, reskilled or not, to be redeployed. This flexible model enabled fast scaling, supported salary growth, and sustained global competitiveness.

It also bred a certain culture. Frequent job-switching among the rank and file of mainframe engineers is not penalised; it is expected. The system tolerates churn, even thrives on it. The pool allows companies to remain lean, avoiding long-term commitments to workforce development. The logic is simple: Why train people for the long term when they will leave for the next increment?

This logic is fragile in the age of AI. New technologies require deep and specific capabilities. AI talent cannot be built through surface-level reskilling. Yet no single company has the incentive to invest, because the return is uncertain and the talent is mobile. The pool model becomes a bottleneck: Too broad to build depth, too fluid to retain expertise.

India’s IT education system compounds the problem. It is optimised for scale, not specialisation. Nearly 4,00,000 computer science engineers graduate annually from All India Council for Technical Education-recognised colleges; part of a broader ecosystem that produces close to a million engineers annually. Most experts agree that these graduates do not have the AI fluency that today’s digital transformation demands. Without strong demand signals from leading IT firms, curriculum reform will lag. The outcome is a pipeline that feeds the pool, but not transformation.

Meanwhile, AI is fundamentally altering what coding and delivery looks like. At Google and Microsoft, nearly 30 per cent of new code is now generated by AI, with engineers in review or augmentation roles. Meta projects that AI will handle around half of its code generation within a year. These shifts necessitate a change in the skill sets needed in IT services and they also accelerate the obsolescence of low value, repetitive coding tasks, once the bedrock of these services.

The rise of Global Capability Centres (GCCs) in India offers a contrast to the stagnation in IT services. Over 1,700 such centres now handle high-value, captive functions for multinationals. These firms invest directly in talent, align it with their proprietary needs, and ensure a pipeline of specialised capabilities. GCCs are building depth where the IT services sector has been structured around breadth. The implication is clear: The value is shifting away from general-purpose outsourcing to focused, in-house transformation.

The Ministry of Electronics and IT is reportedly “keeping a close watch” on the situation following the TCS layoffs. But, the AI-driven shift in labour dynamics is not limited to Indian IT and therefore doesn’t merit any special government scrutiny. Many other traditionally labour-intensive industries such as telecom are experiencing a similar reckoning. For instance, BT Group in the UK stated its plans to cut up to 55,000 jobs by 2030, attributing much of the workforce reduction to customer service and network management. Similar statements have been made by heads of other firms, be it AT&T in the US or Telstra in Australia, where AI has been positioned as a central driver of efficiency.

TCS and its peers must confront the new market dynamics head-on. The massive labour pool model is no longer sufficient. They need to find incentives to train, retain and deepen talent, not just cycle through it. This requires more than minor reskilling efforts. It needs a new compact between firms and workers, and between industry and educators.

AI will compress margins in traditional services, and expose weaknesses in models built on fungibility. The layoffs at TCS are a leading indicator. Reinvention is now a strategic imperative. This requires leadership. Not just high-flying MBAs to manage cost or restructure teams. But people with the creative vision, implementation drive and ownership mindset to define new business models, reimagine delivery frameworks, and re-anchor the value proposition of Indian IT. The industry once produced iconic founders who shaped its global trajectory. It must now produce a new generation of leaders, with a razor-sharp focus on affecting technology-led transformation internally.

The writers are technology policy experts at Koan Advisory Group. Views are personal