Tata Consultancy Services (TCS) recent announcement that it will be laying off 12,000 employees, amounting to 2 per cent of its global workforce, has expectedly started causing significant hand-wringing about the impact of AI on India’s labour market.

• However, TCS’s CEO has stated that the layoffs are due to skill mismatch, asserting that employees lacked the skills required by the industry

The Role of India’s IT Sector

 The IT industry holds immense importance for India:

• In 2024, the IT industry provided employment to 5 million people.
• It contributes 7% to India’s GDP.
• The IT sector accounts for 50% of India’s services exports.
• It serves as a crucial pathway for upward mobility for middle-class youth, especially graduates from tier-2 and tier-3 cities who aspire to work at companies like TCS and Infosys. 
  • Upward mobility means moving a family out of poverty, improving living standards, and gaining respect through career growth.

Key Challenges and Contributing Factors to Layoffs

• Post-COVID Over-Hiring and Global Economic Turmoil: Following the COVID-19 pandemic, IT companies rapidly hired a large number of engineering graduates.
  • However, the global economy is now facing significant instability, with high inflation in the USA and fears of a recession. 
  • This economic uncertainty leads companies to halt new projects, making it difficult for IT giants like TCS and Infosys to secure global clients. 
  • Consequently, they reduce hiring or streamline their existing workforce.
• AI and Automation Impacting Entry-Level Jobs: AI is increasingly performing entry-level tasks, such as testing and bug detection. 
  • Automation allows these initial-stage jobs to be completed faster, more efficiently, and at a lower cost. 
  • AI is now more effective in roles traditionally held by fresh, inexperienced graduates, necessitating new skills from the workforce.
• Rise of Global Capability Centers (GCCs): Multinational Corporations (MNCs) are becoming increasingly savvy. 
  • Instead of outsourcing projects to Indian IT companies like TCS, they are establishing their own Global Capability Centers in India. 
  • This allows them to directly leverage the advantage of cheaper labour available in India, bypassing Indian IT service providers.
• Stagnant Entry-Level Salaries: For the past 10-14 years, the salaries for fresh engineering graduates entering the IT industry have remained largely unchanged. 
  • Meanwhile, the cost of living in major IT hubs like Bengaluru and Gurugram has significantly increased. 
  • This forces middle-class individuals to take loans and fall into debt, undermining the IT sector’s initial promise of boosting the middle class.
• Extreme Market Scenario: The IT industry is now characterised by extreme outcomes: either individuals secure very high packages (e.g., ₹80-90 lakhs or crores) if they are exceptionally skilled, or they face significant difficulty surviving on low packages (e.g., ₹5-10 lakhs). 
  • The “middle ground” in terms of career and financial stability is diminishing.

Way Forward

• Urgent Curriculum Reform: There is an urgent need to revamp engineering curricula to address skill mismatches and industry layoffs.
• Design Short-Term Courses: The government, in collaboration with the IT industry, must design short-term, well-structured courses in critical new skills such as cybersecurity and cloud computing. 
• Upgrade Government Digital Platforms: Government platforms like SWAYAM and NPTEL that offer engineering courses must be consistently upgraded and funded. 
• Diversify Sectoral Focus: While IT is a strength, India must also focus on other promising sectors like biotechnology and pharmaceuticals to diversify its economic growth engines.
• Complete Higher Education System Reform: A comprehensive reform of the higher education system is essential.
• Bridge Industry-Academia Gap: The long-standing disconnect between industry and academia must be actively addressed. 
  • Industry desires specific skills, while academia often teaches outdated curricula. This gap must be filled through concerted efforts.

Conclusion

If India fails to adapt swiftly, these layoffs and rising unemployment will persist. It is imperative for the government to take decisive action to ensure India’s IT dream remains vibrant and continues to drive economic prosperity and upward mobility.

DOWNLOAD PDF