BENGALURU: A day after the country's largest IT services firm Tata Consultancy Services (TCS) announced about 12,260 job cuts, techies and freshers are now concerned whether other IT firms will follow suit. Big tech giants such as Microsoft and IBM have fired 15,000 and 8,000 employees respectively this year alone. But this is the first time in recent years that an Indian IT services company has announced its biggest ever job cut.
Prior to this layoff announcement, TCS updated its talent deployment policy and limited the bench period to 35 days for its employees.
Jefferies in its note said the ongoing layoffs will hurt employee morale and could potentially lead to execution slippages in the near term. "In the longer run, such policies could drive a sharp rise in attrition, similar to what was seen at Cognizant during 2020-22," it said.
Recently, HCLTech said it is also executing a restructuring programme for both people and non-people assets. C Vijayakumar, CEO & Managing Director, HCLTech, during the Q1 post-earnings press conference said that the restructuring plan is mostly for facilities outside India that they have not been utilising.
"There will be some talent ramp-down, especially in geographies outside India and that will be a part of the restructuring plan. We expect all of this to happen starting from Q2, Q3, and some parts of Q4,” he added.
HR experts point out that for the past 1-2 years, the IT industry is going through various challenges including the impact of new technologies such as AI. IT firms are upskilling the majority of its workforce and there has been a shift in companies' focus -- more on outcome-based business models.
What is the potential impact of AI on technology roles and functions? Kamal Karanth, Co-founder, Xpheno, a specialist staffing firm, said the potential for AI to impact existing and future tech workforce varies between the lower, mid and higher complexity spectrums of tech roles and functions.
"Lower spectrum of roles are largely rule-based functions and highly objective, repeatable and transferable. The threat of AI replacing human role-holders is high and imminent in these rule-based functions. As Agentic AI tools and LLM (large language model) processes mature, the potential of AI replacing human role-holders will increase in this layer," he said.
Roles like Test Engineers, Application Testers, QA Tester, SW Test Engineers and QA Engineers would fall in this spectrum. QA/QC Roles in both manual & automation domains would become highly replaceable roles as AI matures in the near-term. This cohort of roles accounts for more than a third (36%-40%) of the total talent pool in the IT Sector’s Testing and QA/QC function, he explained.
With the use of AI, more can be done by less employees, but experts also point out that such layoffs can also be due to declining business revenues of IT firms.
Rajeev Kumar Thakur, Director, Grassik Search, said the recent round of layoffs at TCS can be directly attributed to declining business revenues over the past three quarters—a trend seen across leading global IT firms.
Like its peers, TCS is facing a significant business slowdown and shrinking demand for large contracts, driven both by challenging macroeconomic conditions and the disruptive impact of AI technologies. "It’s important to recognise that this slowdown stems from a shift in client demand caused by AI, rather than a widespread gap in employee skills. As a result, these layoffs are primarily a response to sluggish growth, not evidence of an AI-induced skills gap. This trend is likely to extend to other IT service companies, especially in the wake of TCS setting a precedent," he added.
Looking forward, companies like TCS will need to replace some of the displaced workforce with talent skilled in AI-first and digital-native tools, while simultaneously investing in upskilling their remaining employees to adapt to new, AI-driven business models, he further added.
AI is also reshaping the workforce at a pace many companies and employees weren't prepared for, said Arvind Pandit, Founder & Managing Partner, Ishwa Consulting.
Pandit said that they are seeing roles eliminated not due to underperformance, but because technology is simply doing the job faster, cheaper, and without fatigue. As a recruitment firm, it is seeing this transition up-close. "There is a shift in expectations at the top—virtually all senior technology roles now demand a strong understanding of AI tools, strategy, and implementation. It's no longer optional; leaders are expected to be AI-literate to drive transformation across the business," Pandit said.
Jefferies pointed out that while the layoffs at TCS seem to be due to more company-specific issues, aggregate net hiring at industry level has been weak since FY22, mainly due to the prolonged moderation in demand outlook.
"With cost optimisation being the key driver for new deal wins, clients are asking for productivity benefits -- a trend which is also growing due to the rise in AI adoption. This requires IT firms to do more work with the same number of employees (wallet share gains) or the same work with fewer employees. The 2nd scenario eventually leads to lay-offs as redeployment of bench takes longer when the demand environment is weak," it said.
IT firms with moderating growth have already started operating at higher utilisation levels, while companies with stronger growth outlook still operate with relatively lower utilisation levels.