Indian IT Industry Could See 1-3 Lakh Layoffs On AI Reset | Open Interest

It has been a season of earnings disappointment for Indian IT companies. Revenues have fallen short of expectations, margins are under pressure, profitability has declined, and—above all—employee utilisation levels are lower at the end of the quarter.

Despite better order book inflows, customers are pushing companies to defer billings. The consensus commentary from large and mid-cap players points to a better second half of the financial year (H2) compared to the first. Order book positions have prompted Indian IT companies to realign their manpower to meet the emerging skillset needs required to fulfil these growing commitments.

A rising order book may offer some confidence for the future, but it does not inspire confidence in short-term revenue conversion. Clients are locking in prices in anticipation of eventual IT spending they may undertake later in the year. For Indian IT companies, this future manpower requirement will guide their growth trajectory going forward.

Over the weekend, Intel announced plans to downsize nearly a fifth of its workforce this year. Intel derives around 90% of its sales from the personal computer (PC) and server segments, both of which are highly dependent on IT spending. That spending has paused for now and may resume toward the end of the calendar year, as S&P 500 companies look to maintain their guidance.

IT clients are increasingly tying up future IT spends but are pushing back discretionary spending and delaying project starts.

The Indian IT industry posted revenue of $500 billion in the last financial year, with IT services alone accounting for $250 billion—growing at around 5%. This growth is expected to decline to 0–3% in the current fiscal.

Indian IT giant TCS announced a 2% workforce reduction—about 12,000 employees—driven by changing technology skillset requirements such as AI and other emerging technologies. The company stated it is releasing associates whose deployment may not be feasible. In other words, these are employees who have been on the bench for more than 35 days—sometimes even quarters—and are at the middle or senior level, yet to reskill themselves to meet evolving technologies and client needs.

According to industry body Nasscom, there are 54 lakh professionals employed across IT services, BPM and R&D services. A large portion of these roles will need to evolve from process execution to intelligent orchestration, led by human-AI collaboration. Nasscom has set 2030 as the target year to ensure that over 80% of the current IT workforce is digitally enabled.

The Indian IT sector faces a significant challenge: it is carrying a high proportion of bench strength that hasn’t been deployed for several quarters, where employability has declined due to a widening skill gap. This issue is particularly pronounced in the middle and upper layers of the workforce, which have been slower to adapt to newer skillsets. Nasscom notes that many of these jobs don’t need to be replaced but rather recast into higher-order, AI-augmented roles. However, the industry must collaborate with academia to enable this transition.

In the coming months, many leading companies are expected to follow TCS in resetting their manpower according to evolving skillset requirements.

The layoffs, as is industry practice, will start with those on the bench, followed by those with lower performance scores.

A closer look at the attrition levels of the top six IT companies reveals that attrition has increased by 150–200 basis points over the last four quarters. Except for TCS and HCL Tech, most large players did not significantly increase their employee count during the first quarter.

Even for those that did, hiring efforts were blindsided as project starts were delayed, resulting in underutilisation. This led to lower utilisation levels, increased wage costs, reduced revenue per employee, and mounting pressure on margins.

While a large part of the attrition is due to the migration of skill sets, hiring by companies is primarily happening at the lower and mid-lateral levels to augment the capabilities required for contracts booked over the last two to three quarters.

The Indian IT sector is yet to feel the full impact of the AI reset—what we’re witnessing now is merely a housekeeping exercise. The true AI reset has just begun.