Opinion TCS layoffs reflect the challenges of a sector increasingly relying on AI

On Sunday, Indian tech giant TCS announced its decision to lay off 2 per cent of its global workforce — around 12,000 jobs — over the year. Following this announcement, on Monday, TCS shares fell around 1.6 per cent during trading. Shares of other IT companies mirrored the decline. While the layoffs are being framed in terms of moving towards a “future-ready organisation” through “skilling and redeployment”, concerns over changes in the operating environment of tech companies are being raised. While the TCS decision is expected to hit mid- and senior-level employees the most, the question is whether the layoffs are the beginning of a larger churn in the Indian IT sector.

The IT sector in India has been a major source of employment, especially so in recent years. As per a report in this paper, in the big five IT companies — TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra — employment went up from 11.5 lakh in March 2020 to 15.34 lakh by December 2024 as demand for IT services and digitisation surged post the pandemic. To put these employment figures in perspective, the Indian Railways employed more than 12.5 lakh regular employees as of 2023-24. But, these years have also witnessed two other developments — the advent of AI and Donald Trump’s second term — which are reshaping the operating environment in unprecedented ways. The rapid adoption of AI and automation across the world has dramatically altered the business milieu. And not just in the IT sector, which has been affected, but others as well. Alongside, the economic uncertainty unleashed due to Trump’s policies has impacted firms’ investment and spending decisions. These have raised questions over the future of the Indian IT sector.

Advertisement

Cracks are already appearing in the sector’s business model — a model that has relied on the country’s educational institutions to churn out software engineers at scale and on wage arbitrage. The question is, if over the coming years, AI and automation make large swathes of IT jobs redundant, and the wage arbitrage with other economies reduces, then, where does India’s competitive advantage lie? Considering that Indian IT firms do not allocate large sums of money for research and development — for instance, the consolidated R&D and innovation expenditure for TCS was Rs 2,630 crore in 2024-25 (around 1 per cent of its turnover), and the standalone R&D spending of Infosys was Rs 850 crore in 2025 (0.62 per cent of its revenue) — will firms be able to move up the value chain? And with companies drawing up plans for a future where AI and automation play an increasingly large role, will the business model of IT companies change, and what will be the impact of these changes on the labour market in India? The IT sector will need to navigate these turbulent times carefully.