The great AI shake-up: TCS layoffs hint of much worse to come for the IT sector
India’s IT service companies may fade into obscurity unless they reinvent their business models that rely on an outdated labour pyramid. The downfall of General Electric should serve as a cautionary tale.
Last month, Tata Consultancy Services (TCS), India’s largest private sector employer, made a seismic announcement: 12,000 employees would be laid off, mostly from middle and senior management. This was an unmistakable signal of a strategic shift by a company that had prided itself on employee stability and incremental growth for decades. More than a simple HR pruning, the move revealed that the traditional edifice of Indian outsourcing—a pyramid built on human capital arbitrage—was beginning to show its age.
Officially, TCS cited a growing skills mismatch as the reason for its layoffs, saying that such changes were necessary to prepare for the future. CEO K. Krithivasan downplayed automation as the main reason for the decision. However, industry experts might see it differently. A large part of its workforce reduction—about 2% of its global total—is thought to be a response to the increasing impact of generative artificial intelligence (GenAI) on IT processes.
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This isn’t just about TCS. The entire Indian IT sector, which employs over 5.6 million people and contributes more than 7% to India’s GDP, is in the early stages of a potentially massive disruption. As AI agents increasingly handle testing, low-level code writing, infrastructure support and other traditionally secure functions, forecasts suggest that up to half a million jobs could vanish from the industry in the next few years. Once seen as engines of upward mobility and economic progress, these businesses now face a technological shift that threatens their very operating models.
This is not just a typical business-cycle correction; it represents something much more profound. There was a time when Indian IT firms were judged by their headcounts. The larger it was, the higher your billing potential. That idea stands shattered.
Instead of hiring in bulk, companies are racing to embrace AI. Infosys has reportedly deployed over 100 proprietary AI agents in client environments. TCS has helped modernize operations for global clients using AI automation. HCLTech, too, is reshaping itself as a digital transformation partner rather than a body shop. But the real challenge lies in re-architecting a long-established business model.
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To understand the precarious situation these firms face, it’s helpful to read Evan Armstrong’s insightful essay, ‘How Technology Giants Die,’ where he traces the decline of General Electric (shorturl.at/3sZdQ).
Once a symbol of American industrial strength and managerial skill, GE didn’t collapse overnight. Its downfall was due to structural inertia, complacency and a failure to recognize systemic changes in time. Armstrong explains how dominant companies often fall not because they stop innovating, but because their internal systems—such as organizational culture, incentives and leadership—become too ossified for true reinvention.
Indian IT firms are increasingly vulnerable. Their businesses are optimized for a world where labour scales up faster than innovation. Their cultures focus on process adherence rather than agile reinvention. For years, companies like TCS, Infosys and HCLTech competed not on intellectual property, but on execution: large teams performing repetitive tasks at competitive charges.
This model was effective in an era of digital transformation driven by cloud migration and enterprise resource software integration. However, it is ill-suited for a future where AI agents can take up tasks at scale in real-time without fatigue. What happens when the labour pyramid turns obsolete?
Also Read: Artificial workforce: Microsoft’s layoffs are a canary in the coal mine for white-collar jobs
Look at the early signs. Many Indian IT firms report stagnant or declining sales growth, even as digital demand surges. These firms, though, are mainly viewed as legacy service providers. Their clients, while loyal, now look for solutions, not just services, and packaged solutions need intellectual property, domain expertise and agility—traits that don’t always flourish in large, hierarchical organizations.
TCS’s layoffs highlight a structural delay in adapting to a world where scale must be digital rather than human. They expose a talent model designed for the past, even as the future calls for cross-functional fluency, continuous learning and algorithmic thinking. While TCS and its peers are doing the right thing by focusing on reskilling and internal innovation, it remains uncertain whether these efforts will prove fruitful.
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The stakes are high. India’s IT sector has long supported the country’s middle class, which has been an engine of urban growth with IT incomes powering consumption. Unless this sector undergoes a significant transformation, this tailwind is at risk. If this seems exaggerated, consider Armstrong’s warning: even a company as diverse, reputable and established as GE couldn’t escape structural entropy. The same entropy now threatens Indian IT.
To avoid a similar fate, these companies must do more than retrain staff or deploy AI assistants. They must cannibalize parts of their own business, experiment with unproven product lines, attract a new generation of AI-native talent and accept that the qualities that once made them great—rigour, stability and process—could become liabilities. Reinvention, not re-engineering, is what they need.
If TCS, Infosys and HCLTech can crack that code, they might become integral to the artificial intelligence economy. If they can’t, their fate may mirror that of GE as they slowly fade into obscurity.
The author is co-founder of Siana Capital, a venture fund manager.
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