India’s showpiece software industry is facing a moment of reckoning. The move by the country’s largest IT services firm and biggest private sector employer, TCS, to cut 12,200 jobs at the middle and senior management levels is a big shocker--not only for the software industry but also for the broader Indian economy.
The software giant employs over half a million IT professionals and is often seen as a bellwether for business sentiment across India’s $283 billion software sector. The industry forms the backbone of formal white-collar employment in the country.
For decades, companies like TCS have relied on low-cost skilled labour to deliver software services to global clients. But that model is now under pressure, with AI automating routine tasks and clients increasingly seeking innovative solutions rather than just savings on manpower.
“A number of re-skilling and redeployment initiatives have been under way,” TCS said in a statement, adding that it would be “releasing associates from the organisation whose deployment may not be feasible.”
“Across IT companies, people managers are being let go while the doers are being kept to rationalise the workforce and bring in efficiencies,” BBC quoted Neeti Sharma, CEO of staffing firm TeamLease Digital, as saying.
She added that while there has been a “massive spike” in hiring for emerging tech roles—particularly in AI, cloud computing and cyber security—it is not enough to match the pace of job losses.
TCS’s move underscores a growing “skills mismatch” in India’s software sector, experts say. As generative AI drives productivity gains, companies are being forced to reassess the structure of their workforces.
“This technology shift is forcing businesses to reassess their workforce structure and analyse if resources should be redirected toward roles that complement AI capabilities,” an economist noted.
According to industry body Nasscom, India will require around one million AI professionals by 2026. But fewer than 20 percent of the country’s existing IT workforce has AI-related skills.
While tech companies are significantly ramping up investments in up-skilling initiatives, those unable to adapt are being let go.
Beyond the technological disruption, TCS’s announcement also reflects broader growth challenges across India’s IT sector, according to global investment bank Jefferies.
“Aggregate net hiring at the industry level has been weak since FY22, mainly due to the prolonged moderation in demand outlook,” Jefferies said in a research note.
Demand for IT services in the United States—which contributes roughly half of the revenue for Indian software exporters—has been dampened by policy uncertainty, including tariffs imposed under the Trump administration.
Though tariffs mainly target physical goods, analysts say companies have become cautious with discretionary IT spending amid concerns over global sourcing strategies and economic risks.
At the same time, growing AI adoption in the US is pushing firms to renegotiate contracts and reduce outsourcing costs, compelling people-heavy IT firms to function with leaner teams.
The ripple effects are already visible in Indian tech hubs like Bengaluru, Hyderabad and Pune—once booming with software jobs. An estimated 50,000 jobs were lost in the sector last year. India’s top six IT services companies saw a 72 percent drop in net employee additions.
The implications extend beyond the IT sector. India’s broader economy, already struggling to create sufficient jobs for millions of graduates entering the workforce annually, is likely to feel the impact.
In the absence of a strong manufacturing base, India’s software industry—once dubbed the world’s back office—emerged in the 1990s as a key source of white-collar employment. It helped create a prosperous middle class, spurred urban growth and drove demand for housing, automobiles, and consumer goods.
But the shrinkage of stable, well-paying jobs is now raising questions over the sustainability of India’s services-led growth model.
Until a few years ago, IT firms were hiring around 6,00,000 fresh graduates annually. That number has now fallen to about 1,50,000, according to TeamLease Digital. Other emerging sectors such as fintech and GCCs (Global Capability Centres) are absorbing some of the talent pool, but not enough to bridge the gap.
“At least 20 to 25 percent of fresh graduates will have no jobs,” Ms Sharma warned, adding that “GCCs will never match the volume of hiring that the IT companies did.”
Prominent business leaders have begun flagging the long-term risks. The scaled-down IT sector could “negatively impact many allied services and industries, crash real estate and give a big blow to premium consumption,” said D Muthukrishnan, a leading mutual fund distributor from South India, in a social media post reacting to the TCS announcement.
Earlier this year, Arindam Paul, founder of motor tech firm Atomberg, warned of AI’s potentially “crippling” effect on India’s middle class. “Almost 40–50 percent of white-collar jobs that exist today might cease to exist,” he wrote on LinkedIn. “And that would mean the end of the middle class and the consumption story.”
How Indian tech giants navigate the disruption brought by AI will be crucial—not just for their own survival, but for the country’s future as a global technology hub. The trajectory of India’s middle class, and by extension its economic growth, may well hinge on the outcome.
