Tata Consultancy Services (TCS) last week announced plans to reduce its workforce by some 12,200 middle and senior management positions, around 2% of its total headcount, in what the company described as a response to skill mismatches. However, industry observers see the move as the opening salvo in a much broader, AI-powered campaign to streamline India’s $283 billion IT services sector. Mass layoffs at TCS signal sector shift With more than 613,000 employees before the cuts, TCS is India’s largest private employer and a barometer for the entire outsourcing industry. Although the company said the reductions were due to “skill mismatches” rather than AI-driven gains, multiple analysts believe this is just the start . “We are in the midst of a massive transition that will transform white-collar work as we know it.” Ray Wang, founder of Silicon Valley’s Constellation Research. Wang also warned that further job losses are likely as AI tools become more pervasive. The sector, which employed 5.67 million people in March 2025 and contributes more than 7% of India’s GDP, has long been a crucial engine of middle-class growth. However, as clients demand faster delivery and lower costs, AI is taking on tasks from basic coding to manual testing and customer support. Gaurav Vasu, founder of tech market intelligence firm UnearthInsight, estimates “400,000 to 500,000 professionals are at risk of being laid off over the next two to three years as their skills don’t match client demands,” with about 70% of those affected having between four and twelve years of experience. Work that involves identifying bugs, conducting manual tests or managing routine infrastructure support is especially vulnerable. “With cost optimisation driving new deal wins, clients are asking for productivity benefits—a trend growing due to the rise in AI adoption,” observes Jefferies analyst Akshat Agarwal, emphasising that IT firms are being asked to “do more work with the same number of employees or the same work with fewer employees.” The tech sector is one of the hardest hit with job cuts reported across big firms amid growing AI demand. Recently, Microsoft announced intentions to lay off about 9,000 of its workforce. Mid-career professionals bear the brunt Vasu cautions that fears of widespread layoffs “may hurt consumer demand for tourism, luxury shopping and even delay long-term investments such as real estate.” The decline in consumer spending among the country’s white-collar class may affect its economic growth. Other leading Indian IT exporters, Infosys, HCLTech, Tech Mahindra, Wipro, LTIMindtree and Cognizant—collectively employ over 430,000 professionals with between 13 and 25 years of experience, according to staffing firm Xpheno. “At the moment, they may appear like the big fat middle layer,” says Xpheno co-founder Kamal Karanth, suggesting further cuts could soon ripple across these firms. Nasscom, the industry body, acknowledges the sector is “at an inflection point, as AI and automation move to the very core of how businesses operate.” During earlier technological revolutions, organizational restructuring often absorbed the shock; with AI, however, “for the first time, the onus is on the individual to reinvent or re-skill themselves,” notes former Tech Mahindra CEO CP Gurnani. In its announcement, TCS stressed it is preparing to be “future-ready” by investing in new technologies, entering fresh markets, deploying AI at scale for both clients and internal operations, and realigning its workforce model. However, the company declined to specify how many of the layoffs were directly tied to AI adoption or how many affected employees could be redeployed. As the Indian outsourcing industry braces for what many see as the most disruptive phase since its inception in the 1990s, both companies and workers face a stark choice – adapt or perish. Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now