India’s largest private employer, Tata Consultancy Services (TCS), announced it will cut more than 12,000 jobs—its biggest layoff to date—as the country’s IT sector faces mounting pressure from slowing global demand and artificial intelligence automation. The cuts signal broader disruption in an industry that employs over half a million workers and contributes 7.5% to India’s GDP, raising concerns about the country’s economic trajectory and ability to create the 8 million jobs needed annually.
The big picture: India’s IT sector, long built on low-cost skilled labor for routine software services, is being squeezed by AI automation that threatens entry-level positions while transforming mid-level roles.
- TCS CEO K Krithivasan attributed the layoffs to “limited deployment opportunities and skill-mismatch” rather than AI, but economists see the cuts as part of AI’s growing influence on the industry.
- The sector faces pressure to pivot from low-end routine work to higher value-added services and innovation as global clients demand more sophisticated solutions.
Why this matters: The IT sector has been a cornerstone of India’s economic growth and a top destination for the country’s 1.5 million annual engineering graduates.
- “AI adoption is a major challenge for India. Entry level routine jobs are being displaced, and mid-level jobs are transforming,” said Sonal Varma, chief economist of India and Asia ex-Japan at Nomura, a global financial services firm.
- Any slowdown creates ripple effects across the economy, potentially impacting real estate, retail, and ancillary services.
Labor market strain: India’s unemployment situation is worsening alongside the IT sector challenges.
- Urban unemployment rose to 7.1% in June from 6.5% in April, while youth unemployment in urban areas spiked to nearly 19%.
- The bulk of job creation has come from self-employed sectors where wages remain lower than salaried positions, according to Anubhuti Sahay, head of South Asia economic research at Standard Chartered.
What they’re saying: Economists warn that failure to adapt could trap India in economic stagnation.
- “If the economy is unable to adapt, this could lead to job losses, lower services exports, moderate urban consumption. It could risk India getting stuck in the middle-income trap,” Varma said.
- Dhiraj Nim, economist and foreign exchange strategist at ANZ Research, noted that while current challenges may be cyclical, AI “will be a trend to reckon with in the years to come.”
The response: Government and industry efforts focus on workforce transformation and economic diversification.
- New Delhi has launched an internship program for upskilling younger adults and is incentivizing growth in labor-intensive manufacturing sectors like electronics and textiles.
- One in five young adults in India have participated in AI-skilling programs, according to a Google.org and Asian Development Bank report.
- Economists urge accelerated upskilling efforts to bridge skill gaps and reduce job displacement risks.
Key details: Recent earnings from IT majors painted a sobering picture of sector performance.
- TCS, Infosys, and Wipro all reported muted year-on-year growth, largely attributed to uncertainty around U.S. tariffs affecting American clients’ budgeting confidence.
- The 12,000 TCS job cuts represent 2% of its global workforce and target mostly middle and senior management levels.
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