Why India’s IT sector is shedding jobs
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India’s IT sector is facing job cuts, prompting questions about the reasons behind the layoffs. While global demand slowdown plays a role, the impact of artificial intelligence on job roles is also being closely monitored in an industry that has been a cornerstone of India’s economic growth.
Tata Consultancy Services, India’s largest private sector employer with over half a million IT workers, recently announced plans to cut more than 12,000 jobs, mainly at the middle and senior management levels, affecting 2% of its global workforce — marking its largest layoff to date.
The company’s CEO attributed the decision to “limited deployment opportunities and skill-mismatch,” denying that AI was the primary cause. However, the layoffs have sparked concerns within the country, with many interpreting them as a sign of significant changes in the IT sector, exacerbated by the growing influence of AI.
The sector’s reliance on low-cost, skilled labor is being challenged as AI automation threatens to replace repetitive tasks and clients demand higher levels of innovation.
With India producing over 1.5 million engineering graduates annually, any slowdown in the IT sector could have far-reaching effects on the economy. The sector contributed approximately 7.5% to India’s GDP in fiscal year 2023.
AI adoption a ‘major challenge’
“AI adoption is a major challenge for India. Entry level routine jobs are being displaced, and mid-level jobs are transforming,” said Sonal Varma, chief economist of India and Asia ex-Japan at Nomura.
“This creates the challenge for job creation for India, since the country needs to create about 8 [million] jobs annually,” she added.
Recent earnings reports from IT majors like TCS, Infosys, and Wipro show muted year-on-year growth, partly due to uncertainty around U.S. tariffs impacting American clients’ budgeting confidence.
The slowdown in India’s IT sector may be a “cyclical change” as services exports to the U.S. have eased, according to Dhiraj Nim, economist and foreign exchange strategist at ANZ Research.
If the economy is unable to adapt, this could lead to job losses, lower services exports, moderate urban consumption. It could risk India getting stuck in the middle-income trap.
Sonal Varma
Chief economist of India and Asia ex-Japan at Nomura bank
The labor market problem could persist for a few years, said Anubhuti Sahay, head of South Asia economic research at Standard Chartered, urging New Delhi to focus on creating more salaried jobs to address rising unemployment rates.
Efforts to upskill the labor force and bridge the skill gap are crucial to mitigate job displacement risks in the face of AI advancements.
Workforce upskilling
Economists emphasize the need for India to accelerate upskilling initiatives to prepare the workforce for the changing job landscape influenced by AI.
Government programs like internship opportunities aim to provide practical experience and enhance skills among younger adults.
The shift towards higher value-added services and innovation is crucial for India to avoid job losses and maintain economic growth.
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