Mint Explainer | TCS layoffs, slowdowns, and AI disruption: Why IT jobs are vanishing

Once a symbol of India’s global ascent and a magnet for white-collar jobs, the IT services sector is undergoing a structural reset. Mint decodes:

1) Why is TCS laying off employees?

TCS, which employs 613,000 globally, is letting go of about 12,200 employees, in phases through FY26. The company has attributed this to a skill mismatch and the limited feasibility of redeploying mid- and senior-level employees amid structural changes in delivery models. The move is part of a larger effort to become “future-ready,” not a cost-cutting initiative, the company has said.

The industry is shifting from traditional waterfall methods, where one phase must be completed before the next begins, to agile, product-centric approaches. This transition is reducing the need for layered project management roles. Despite extensive upskilling initiatives, TCS has struggled to redeploy staff, particularly at mid and senior levels.

Industry body Nasscom expects further workforce rationalisation in the coming months as traditional skillsets are reassessed. In a statement Nasscom said, “The technology industry is at an inflection point as AI and automation move to the very core of how businesses operate. Over the next several months we anticipate some transitions as organisations pivot towards product-aligned delivery models, driven by rising client expectations around agility, innovation and speed.”

2) Is AI the key reason for the layoffs?

AI isn’t the direct trigger, but it’s a powerful underlying force. TCS has clarified that the layoffs are not a result of AI-driven productivity gains. However, AI is fundamentally reshaping delivery models and client expectations, indirectly driving workforce restructuring.

Roles that haven’t kept pace with AI, particularly those tied to legacy systems or manual processes, are increasingly becoming obsolete. So while AI may not be the official reason, it is accelerating the shift toward leaner, more AI-savvy teams.

3) Is IT services growth slowing down? If so, how is that impacting jobs?

Yes, growth is clearly slowing. India’s top six IT firms added just 3,847 employees in Q1FY26, a 72% drop from the previous quarter.

According to Bengaluru-based consultancy UnearthInsight, core markets like the US, which account for around 70% of the industry’s revenue, are underperforming. For TCS, revenue from North America, which contributes 49% of its business, declined 2.7% in the quarter, with segments like retail and life sciences registering weak growth.

Discretionary tech spending has softened, particularly in the US and Europe. At the same time, AI-led efficiencies are breaking the traditional linear link between headcount and revenue. Hiring is now more selective and focused on niche skillsets. The result: layoffs, onboarding delays, and subdued lateral hiring, especially at the mid-level.

4) What happens to the IT sector’s pyramid model?

The sector is in the middle of a structural reset. The traditional pyramid model, built on mass hiring at the base and layered management above, is giving way to leaner, outcome-focused teams. AI, automation, and cloud-native delivery are reshaping roles, skill requirements, and billing structures.

Experts say companies must pivot to product-led, platform-first strategies to stay relevant. TCS’s move underscores that even the most stable players are not insulated from this shift. More layoffs and continued margin pressure are likely.

5) How will this impact campus hiring and salaries?

Campus hiring is already under pressure. Entry-level recruitment has dropped nearly 50% from pre-pandemic levels. TCS has paused lateral hiring and salary hikes, and onboarding delays now exceed 65 days for some roles, according to reports.

IT services firms are no longer the top choice on campuses. Product companies, GCCs, startups, and end-user IT departments of large conglomerates have moved up the pecking order. Entry-level salaries in IT services have remained stagnant at ₹4-4.5 lakh for years, while GCCs offer roughly 15% higher pay, making them more attractive to freshers.

While GCCs and startups may absorb some of the talent, the traditional volume hiring model is fading. Freshers now face tougher screening, longer wait times, and limited salary growth, unless they bring in-demand, AI-aligned skills to the table.

6) Can Agentic AI take away jobs? If so, at what levels?

Agentic AI, systems that can autonomously plan and execute tasks, is starting to disrupt roles centred on coordination, monitoring, and repetitive execution. Mid-level managers, manual testers, and legacy system specialists are among the most vulnerable, as AI agents increasingly deliver faster, cheaper outcomes. The shift isn’t just about reducing headcount—it’s redefining what counts as billable and valuable in a tech-first delivery model.

According to one of the Big Four consultancies, Agentic AI is also beginning to impact L1 jobs, entry-level roles such as technical assistants. Over the next 12-18 months, it expects 20-30% of such positions to be affected. Functions like vendor invoicing, technical support, accounts payable, and HR tasks such as payroll management are particularly at risk, given their suitability for automation.

7) How are GCC growth and US tariffs impacting IT services?

US tariffs are affecting client decision-making and dampening IT spending in key sectors such as retail, automobiles, and manufacturing. Many clients are holding back discretionary tech investments while they wait for greater policy clarity.

At the same time, the rapid expansion of global capability centres (GCCs) is reshaping the IT services landscape. According to a recent Confederation of Indian Industry (CII) report, India has emerged as a global hub for GCCs, hosting over 1,800 centres as of FY25. That number could rise to nearly 5,000 by 2030, employing 4-5 million people directly.

This expansion is expected to reduce the volume of work outsourced to third-party IT service providers. GCCs are evolving from low-cost delivery centres into innovation hubs, hiring for advanced skills such as product engineering, analytics, AI, and cloud services. PwC estimates that the value added by top-tier GCCs is nearly 20% higher than that of traditional IT services firms.

As a result, GCCs are becoming front-runners in both job creation and value delivery. Many IT services companies are responding by aligning more closely with GCCs and appointing dedicated GCC heads to deepen collaboration.