AI, margins, skill gaps: TCS cuts 12,000 jobs; Nasscom warns of more cuts

India’s technology sector is bracing for further job cuts as artificial intelligence and automation accelerate changes in business models, according to the National Association of Software and Service Companies (Nasscom).

The industry body’s comments come in the wake of Tata Consultancy Services’ (TCS) announcement that it will shed over 12,000 jobs in the current financial year.

TCS, the country’s largest software exporter with a workforce of more than 6.1 lakh, will phase out around two per cent of its global staff in FY26, chiefly affecting middle and senior-level employees.

Chief executive and managing director K. Krithivasan, in a recent media interview to moneycontrol, attributed the decision to widening skill gaps and difficulties in redeploying talent amid shifting client demands and rapid adoption of new technologies.

“This will impact roughly 2 per cent of our workforce globally. It has not been an easy decision, but the way of working is changing, and we need to be future-ready,” Krithivasan said, stressing that redeployment opportunities had proved limited in some roles.

Nasscom, of which TCS is a prominent member, acknowledged that the industry is at an “inflection point”, as clients increasingly demand agility, innovation and speed.

“Over the next several months, we anticipate some transitions as organisations pivot towards product-aligned delivery models. This may lead to workforce rationalisation as traditional skillsets are reassessed,” it said in a statement.

The association urged stronger collaboration between industry, academia and the government to bridge the skilling divide and ensure India retains its technology leadership in the AI era.

It noted that over 1.5 million professionals have already been trained in AI and generative AI skills, with nearly one lakh employees across major firms receiving advanced certifications in areas such as cloud-native AI and embedded intelligence.

Analysts, however, view the TCS cuts as a watershed moment for the sector. “If TCS is taking this step, it lowers the threshold for others to follow,” said Ashutosh Sharma, vice-president at Forrester. Others believe margin pressures, slowing global demand, and client pushback on pricing are forcing IT firms to recalibrate their people-heavy models.

“AI is eating into the traditional services approach and clients are demanding 20–30 per cent price reductions on deals,” observed Phil Fersht, chief executive of HFS Research.

The decision has already rattled investors, with TCS shares closing 1.61 per cent lower at Rs 3,083.95 on the BSE on 28 July.

Industry watchers expect the trend to extend beyond TCS. HCLTech has indicated a phased “talent ramp-down” as part of its global restructuring drive, while others may follow suit as AI-driven transformation reshapes demand. Market research firm UnearthInsight noted that the sector, once accustomed to steady annual growth of 7–10 per cent, is now expanding at a slower 3–5 per cent pace.

“The mismatch shows the inability of experienced talent to upskill quickly enough. Either firms are offering new services that current employees cannot deliver, or the workforce is lacking skills in demand,” said UnearthInsight founder Gaurav Vasu.

While industry leaders acknowledge the upheaval, they also highlight the opportunities. Fersht expects the shake-up to continue for about a year as providers train junior talent in AI-enabled services, moving towards what he terms “services-as-software”.

For now, however, the layoffs at TCS mark one of the most significant workforce reductions in corporate India and a signal that the age of AI-driven restructuring has well and truly arrived.