- TCS is laying off 2% of its workforce this financial year to realign with emerging business models
- While TCS denies AI is the direct reason for layoffs, the industry is being transformed by AI-led efficiencies
- The move stirred reactions from employee unions, industry bodies and the government
India’s largest IT services company, Tata Consultancy Services (TCS), created a stir recently by announcing that it will lay off 12,000 or about 2% of its workforce.
A statement issued by the company said the layoffs are part of the company’s strategy to become “future-ready” via a series of reskilling and redeployment initiatives. TCS said in a statement the cuts will primarily impact "middle and senior" grade employees and will be carried out over the course of the year.
“This is not because of AI giving some 20% productivity gains. This is driven by whether there is a skill mismatch or where we think we have not been able to deploy someone,” TCS CEO K. Krithivasan said in an interview with Moneycontrol. He also mentioned that the company will handle the layoffs in a “very compassionate way” and will offer severance packages, health insurance, mental health counselling and outplacement support to those impacted.
As of June, the $30-billion company employed 613,069 people across the world.
"While difficult for those impacted, the move appears to be both strategic and structural," Deepak Kumar, the founder analyst and chief research officer at BMNxxt Business and Market Advisory said. "Viewed through a long-term lens, this layoff could signal a transformation in the Indian IT services landscape. TCS seems to be recalibrating its workforce to align with shifting market realities, where the acceleration toward AI-driven and digital-first models demands more specialized capabilities and sharper cost efficiency."
"For mid- and senior-level technology professionals, this serves as a broader wake-up call to adapt, reskill, and stay relevant in a rapidly evolving ecosystem," he added.
Structural shift
Indeed, the layoffs at TCS are a sign of a structural shift in the IT industry, which is transitioning from the traditional “waterfall” project management to a more product-centric model.
The waterfall approach refers to a model where each phase of software development, including system design, coding, integration and testing and deployment, among others, is completed before the next one begins. This approach requires several leadership hierarchies. However, the industry is now moving towards a more product-based model, leading to changes in the workforce.
“When we did programs in the old waterfall method, we had multiple leadership teams driving it. But as we move towards a more product-aligned model where we are more agile, where clients also work along with us, clients bring in their leadership team, and the pure non-technical managerial talent is required. The number in which we require them also increases,” Krithivasan told Moneycontrol.
TCS claimed to have already undertaken massive AI training and upskilling by training around 550,000 people in the initial skills and 100,000 in the advanced skills required to use the technology.
The move to downsize closely follows the company's introduction of new rules requiring employees to maintain at least 225 billable days every year and limiting the idle time between projects to no more than 35 days per year.
What does it mean for the Indian IT industry
While the TCS CEO denied downsizing because of AI, there is no denying that AI is reshaping business models. With AI and AI agents taking over several tasks, it has significantly reduced the need for large teams.
The Indian IT industry recorded revenue of around $268.8 billion in FY2024 and employs 5.67 million people, according to the National Association of Software and Service Companies (NASSCOM). For years, it has been considered one of the country’s sunrise industries, contributing significantly to generating employment as well as to the overall growth of the Indian economy.
Beyond the AI impact, it's worth noting that the Indian IT industry is heavily dependent on the U.S. market and tariff-related uncertainties in the U.S. can slow down this sector. Apart from TCS, other Indian IT players, like Infosys and Wipro, are also reevaluating their workforce.
NASSCOM issued a statement noting the evolution of new business models as AI and automation become mainstream. “Over the next few months, we anticipate some transitions as organizations pivot towards product-aligned delivery models, driven by rising client expectations around agility, innovation and speed,” it said.
Industry reactions
The TCS layoffs prompted the Nascent Information Technology Employees Senate (NITES) to appeal to Labour Minister Mansukh Mandaviya to intervene and stop the terminations. NITES called the layoffs “inhumane”, “unethical” and “outright illegal”. Per news reports, the Ministry of Electronics and Information Technology is closely watching developments at TCS.
Questions have also been raised about the INR265 million (around $3 mn) salary of the TCS CEO when a significant number of the company’s employees are being let go.