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The recent layoffs at Tata Consultancy Services (TCS), affecting a significant number of 12,000 employees, should serve as a critical wake-up call. This isn't just a localized issue confined to India's Information Technology (IT) services sector; it represents a fundamental shift in the global technological landscape, demanding immediate attention from corporate leadership across industries in this era of Artificial Intelligence (AI). While TCS attributes these layoffs to skill mismatches and evolving client priorities, the underlying problem is far more deeply rooted and structural in nature. The Indian IT industry, once a beacon of modernity and progress, is now facing a stark existential challenge, potentially becoming a casualty of its own operational logic – a logic deeply intertwined with the rise of automation and AI. For decades, organizations like TCS have been at the forefront of global digital transformation. Their core strategy involved building large, scalable workforces, meticulously designed to help companies unlock substantial cost efficiencies through optimized processes and streamlined operations. This approach has undeniably been effective in driving down costs and improving productivity. However, it's crucial to acknowledge that efficiency gains invariably lead to a reduction in labor demand, particularly in areas where significant productivity improvements have been achieved through automation. As AI continues to advance and permeate various sectors, the emergence of new job roles in nascent value chains and domains is certainly plausible. Nevertheless, the immediate and pressing reality is that AI-led automation is directly targeting the very core of IT services, automating many of the tasks previously performed by human workers. This constitutes the primary and most immediate risk, but a more comprehensive understanding of the underlying structural issues within the Indian IT sector is essential for developing effective long-term solutions. The prevailing labor pool model, which has long been the foundation of Indian IT's success, is now showing significant signs of strain.
The strength of the Indian IT sector has historically resided in its vast pool of over five million workers, possessing a wide range of broadly applicable skills. Companies have traditionally leveraged this labor pool on a project-by-project basis, scaling up their workforce rapidly to meet the demands of high-margin digital transformation contracts, and then releasing talent back into the pool once the projects are completed. This flexible model has enabled rapid scaling, supported salary growth, and sustained global competitiveness. Workers, whether reskilled or not, would then rejoin the pool, ready to be redeployed to new projects. This model, however, has also fostered a specific kind of corporate culture. Frequent job-switching among the rank and file of mainframe engineers is not only tolerated but also often expected. The system is designed to accommodate churn, and in some ways, even thrives on it. The readily available labor pool allows companies to remain lean, minimizing long-term commitments to workforce development. The underlying logic is straightforward: why invest heavily in training employees for the long term when they are likely to leave for the next opportunity offering a higher salary increment? While this logic has served the Indian IT sector well in the past, its fragility is becoming increasingly apparent in the age of AI. New technologies demand deep and highly specific capabilities, requiring specialized knowledge and expertise that cannot be acquired through superficial reskilling programs. Crucially, no single company has a strong incentive to make substantial long-term investments in developing such specialized AI talent, because the return on investment is inherently uncertain, and the talent is highly mobile. The traditional labor pool model, therefore, becomes a significant bottleneck, being too broad to facilitate the development of deep expertise and too fluid to retain specialized talent effectively.
Furthermore, India's IT education system exacerbates the problem. It is primarily optimized for scale, prioritizing the production of a large number of graduates over the cultivation of specialized expertise. Each year, nearly 400,000 computer science engineers graduate from colleges recognized by the All India Council for Technical Education (AICTE). This is part of a larger ecosystem that produces close to a million engineers annually. However, the prevailing consensus among industry experts is that these graduates often lack the AI fluency that today's demanding digital transformation landscape requires. Without strong and consistent demand signals from leading IT firms, curriculum reform will inevitably lag behind the rapidly evolving needs of the industry. The unfortunate outcome is a pipeline that continues to feed the labor pool with generalist engineers but fails to deliver the specialized AI talent needed for genuine transformation. In the meantime, AI is fundamentally changing the very nature of coding and software delivery. Leading technology companies like Google and Microsoft have reported that AI now generates nearly 30 percent of their new code, with human engineers primarily serving in review or augmentation roles. Meta, formerly known as Facebook, projects that AI will handle approximately half of its code generation within the next year. These substantial shifts necessitate a radical change in the skill sets required in IT services. They also accelerate the obsolescence of low-value, repetitive coding tasks, which were once the bedrock of many IT services organizations. The rise of Global Capability Centers (GCCs) in India offers a stark contrast to the perceived stagnation in IT services. Over 1,700 such centers now handle high-value, captive functions for multinational corporations. These firms invest directly in developing talent, meticulously aligning it with their proprietary needs, and ensuring a continuous pipeline of specialized capabilities. GCCs are building depth where the IT services sector has been traditionally structured around breadth. The implication is clear: the value is shifting away from general-purpose outsourcing towards focused, in-house transformation capabilities.
The Ministry of Electronics and IT is reportedly “keeping a close watch” on the situation following the TCS layoffs. However, the AI-driven shift in labor dynamics is not limited to the Indian IT sector and, therefore, may not warrant special government scrutiny. Many other traditionally labor-intensive industries, such as telecom, are experiencing a similar reckoning. For instance, BT Group in the UK recently announced its plans to cut up to 55,000 jobs by 2030, attributing much of the workforce reduction to automation in customer service and network management. Similar statements have been made by executives at other major firms, such as AT&T in the US and Telstra in Australia, where AI has been explicitly positioned as a central driver of efficiency and workforce optimization. TCS and its peers must confront the new market dynamics head-on. The massive labor pool model, which has been a cornerstone of their success, is no longer sufficient to guarantee long-term sustainability. They need to develop innovative incentives to train, retain, and deepen talent, rather than simply cycling through it. This requires more than just minor reskilling efforts. It necessitates a fundamental reimagining of the relationship between firms and workers, and between industry and educators. AI will inevitably compress margins in traditional IT services and expose weaknesses in business models built on fungibility. The layoffs at TCS serve as a leading indicator of this profound shift. Reinvention is now a strategic imperative, requiring not just high-flying MBAs to manage costs or restructure teams, but visionary leaders with the creative vision, implementation drive, and ownership mindset to define new business models, reimagine delivery frameworks, and re-anchor the value proposition of Indian IT. The industry once produced iconic founders who shaped its global trajectory. It must now cultivate a new generation of leaders with a razor-sharp focus on effecting technology-led transformation internally.
Source: TCS layoffs: The traditional IT model is showing cracks