Three years on, AI is prompting IT services companies to cut workforce.

Mint

9 hours ago

Tata Consultancy Services (TCS) will lay off approximately 12,000 employees this fiscal year, as India's biggest private employer adjusts to slowing growth and rising artificial intelligence (AI).
The company attributed the decision, which will primarily impact senior and middle-level employees, partly to AI.
"TCS is on a journey to become a future-ready organization," a company statement said on Sunday. "This includes strategic initiatives on multiple fronts including investing in new-tech areas, entering new markets, deploying AI at scale for our clients and ourselves, deepening our partnerships, creating next-gen infrastructure and realigning our workforce model.
'As part of this journey, we will also be releasing associates from the organization whose deployment may not be feasible. This will impact about 2% of our global workforce, primarily in the middle and the senior grades, over the course of the year."
This would imply that TCS, which ended the June quarter with 613,069 employees, will let go of 12,200 employees. Mint has learnt that TCS has already asked 100 employees in Bengaluru to go over the last fortnight.
The TCS job cut comes 30 months after the debut of ChatGPT cast a shadow over the business model of India's IT giants, who employ armies of coders. Just two weeks ago, India's third-largest IT services HCL Technologies Ltd mentioned potential layoffs as automation replaces work done by graduates.
'The impact of AI is eating into the people-heavy services model and forcing the large service providers such as TCS to rebalance their workforces to maintain their profit margins and stay price competitive in a cut-throat market where clients are demanding 20-30% price reductions on deals," said Phil Fersht, chief executive of HFS Research.
'This trend will last for about a year as the leading providers focus on training junior talent to work with AI solutions, and are forced to move on people who will struggle to align with the new AI model we call services-as-software," said Fersht.
Meanwhile, fourth-largest Wipro Ltd is planning English competency tests for senior executives. Employees faring poorly in the first-of-its-kind exercise may be put on performance improvement plans, according to three executives privy to the development, stoking fears of potential layoffs.
'Please note that it is mandatory to take the communication assessment and clear it," read an internal email shared with Wipro employees on 19 July and accessed by Mint. 'Not taking the assessment will invite disciplinary action. Not clearing it in one attempt will result in a Performance Improvement Plan (PIP)," read Wipro's email. A PIP is often seen as a prelude to termination.
An email sent to Wipro seeking a comment went unanswered.
At HCL Technologies, it is graduates who are in the crosshairs, unlike TCS and Wipro, where the heat is on middle and senior employees.
"Of course, we have had a good amount of people released due to the productivity improvements. Now, not all of them are readily redeployable, because the requirements for some of the entry-level or lower-end skills are being addressed through automation and other elements," CEO C. Vijayakumar told analysts on 14 July.
"The training and the redeployment time is longer. Some of them will be redeployed, but for others, it may not be possible. So, some amount of change in the industry is also kind of causing this," said Vijayakumar. HCL did not specify what percentage of workforce would be impacted. An email seeking comment went unanswered.
The news of layoffs at TCS, first reported by Moneycontrol on Sunday, has also sparked debate about whether it is due to disruption from AI or the company's underperformance.
"This round of layoffs is completely on account of slow growth," a TCS executive said on the condition of anonymity. 'Automation and GenAI cannot be displacing executives with 10 or more years of experience."
TCS's under-performance under K. Krithivasan, who took over as CEO on 1 June, 2023, has caused anxiety among senior executives and a few analysts. In the June quarter, the company reported the slowest revenue growth among the top five, reporting a 0.59% sequential revenue decline to $7.42 billion.
It's not a one-off either. Between 1 July 2023, and 30 June 2025, TCS achieved a 0.34% compounded quarterly dollar revenue growth, with its revenue increasing from $7.22 billion in the June quarter of 2023 to $7.42 billion in the June quarter of 2025. Infosys, in comparison, achieved a growth of 0.85% during this period, while HCL Technologies achieved 1.29%.
For this reason, analysts at Kotak Institutional Equities believe TCS has lost its sheen compared to its peers in recent years. "TCS's relative resilience (ability to bounce back from a shock) versus peers has narrowed compared with the past. Relative competitive advantage has declined," its analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna wrote on 11 April.
'TCS did not lead growth in the past two years, even when demand was driven by cost take-outs. Performance in developed markets in FY2025 has been poor with a decline in North America," the Kotak note added.
Keith Bachman, analyst at BMO Capital Advisors, said AI-related productivity benefits could be meaningful in the 20-30% range over time. "Hence, all services providers will need to 1) gain share and/ or 2) enable and capture new addressable market opportunities to sustain growth. We remain concerned on impact to long-term growth from AI efficiency," wrote Bachman, who was among the first to cite GenAI's threat to IT services firms, on 23 July.
Nearly a year after the launch of ChatGPT, Bachman had cautioned, 'First, all IT service providers have adopted new tools or end solutions that caused pressure on billable hours, to include Robotic Process Automation (RPA) and code repositories, amongst other areas. Further, each new tool or solution generates higher efficiency than the previous tools or solutions."