AI Job Cuts in India’s Tech Sector Threaten Middle-Class Stability

India’s largest IT services company, Tata Consultancy Services (TCS), is cutting over 12,000 jobs at middle and senior management levels, signalling a major shift in the country’s software industry.

The move, which affects 2% of TCS’s workforce, comes as the company invests in artificial intelligence and restructures to remain competitive amid changing global demands.

Headquartered in Mumbai, TCS employs more than 500,000 workers and is seen as a bellwether for India’s USD 283 billion software industry.

TCS stated the decision was made to make the company “future ready” as it deploys AI at scale and adapts to disruptions in its traditional outsourcing model.

For decades, Indian IT firms have relied on low-cost skilled labour to deliver software services to global clients. However, AI is now automating many of these tasks, and clients are demanding more innovation rather than just cost savings.

TCS said it has launched re-skilling and redeployment initiatives but will release employees “whose deployment may not be feasible.”

Neeti Sharma, CEO of staffing firm TeamLease Digital, said people managers are being let go while technical staff are retained to improve efficiency.

She noted a surge in hiring for roles in AI, cloud, and data security, but not at a pace that matches the rate of job losses.

Experts say the layoffs highlight a growing skills mismatch in India’s IT sector.

Rishi Shah, economist at Grant Thornton Bharat, said the AI-driven productivity boom is forcing companies to reassess workforce structures and redirect resources to roles that complement AI.

According to industry body Nasscom, India will need 1 million AI professionals by 2026, but fewer than 20% of current IT workers are AI-skilled.

While companies are increasing spending on up-skilling, those without relevant skills are being laid off.

Global investment bank Jeffries said the TCS layoffs also reflect broader growth challenges in India’s IT sector.

Since financial year 2022, net hiring across the industry has been weak due to a prolonged slowdown in demand.

Demand from the US, which accounts for half of Indian IT revenue, has been affected by Donald Trump’s tariffs and economic uncertainty.

US clients are also pushing for lower costs as they adopt AI, forcing Indian IT firms to operate with leaner teams.

The impact is being felt in cities like Bengaluru, Hyderabad, and Pune, where an estimated 50,000 IT jobs were lost last year.

India’s top six IT firms saw a 72% drop in net employee additions during the same period.

This trend could have wider economic consequences in a country where the software industry has long been a key source of white-collar employment.

With a weak manufacturing sector, IT jobs have historically absorbed hundreds of thousands of graduates annually and helped build a growing middle class.

However, annual hiring of fresh graduates by major IT firms has dropped from 600,000 to 150,000 in the past two years, according to TeamLease Digital.

Other sectors like fintech startups and global capability centres (GCCs) are hiring, but not at the same scale.

Sharma estimates that 20-25% of new graduates may remain unemployed, and GCCs cannot match the hiring volume of traditional IT firms.

Business leaders have warned of the economic risks.

D Muthukrishnan, a major mutual fund distributor, said the shrinking IT sector could hurt allied industries, real estate, and premium consumption.

Arindam Paul, founder of motor tech firm Atomberg, warned that 40-50% of white-collar jobs could disappear, threatening the middle class and India’s consumption-driven growth.

India’s ability to adapt to AI disruptions will determine whether it can maintain its global tech leadership and support its expanding middle class.

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• TCS to cut over 12,000 jobs amid AI-driven restructuring

• India’s IT sector faces skills mismatch and declining hiring

• AI adoption and US tariffs impact demand for Indian IT services

Source: BBC