The Indian IT sector is grappling with a difficult earnings season, marked by disappointing revenues, declining profitability, margin pressure, and underutilised manpower. While order book inflows remain healthy, clients are deferring billings and delaying project starts, forcing companies to realign resources. Despite expectations of a better second half of the financial year, revenue conversion in the short term remains uncertain.
Indian IT Firms Restructure Workforce Amid AI Shift and Skill Gap
To adapt to changing client needs and emerging technologies like AI, IT firms are reorganizing their workforce. TCS, for instance, has announced a 2% reduction, cutting approximately 12,000 roles, mainly targeting employees on the bench for extended periods without relevant reskilling. Many middle and senior-level professionals are unable to transition to evolving roles due to a widening skill gap. According to Nasscom, 54 lakh professionals are currently employed in the sector, and 80% of them need to be digitally enabled by 2030 to remain relevant. The focus is shifting from routine process execution to intelligent, AI-driven orchestration.
Despite a growing order book, IT spending is currently paused, especially in key sectors like PCs and servers. Companies like Intel, which relies heavily on these markets, are also downsizing. This trend is expected to be mirrored in Indian IT firms, with an estimated 2–5% workforce reduction—impacting 1–2.7 lakh employees. Layoffs are likely to start with those on the bench and individuals with poor performance ratings.
Rising Attrition and Underutilisation Signal Deeper AI-Led Overhaul in IT Sector
Attrition across Tier-1 IT firms has also risen over the past year, with most companies experiencing a 150–200 basis point increase. Concurrently, hiring has slowed or turned negative, with Tech Mahindra and LTIMindtree reporting consistent headcount reductions. Even firms that added staff saw underutilisation due to delayed project kickoffs, increasing wage costs and reducing revenue per employee.
As the AI transformation accelerates, the sector is only beginning its structural overhaul, with deeper changes expected in the near future.
Summary:
The Indian IT sector faces declining revenues, rising attrition, and underutilised staff amid paused client spending and delayed projects. Companies like TCS are downsizing to address skill gaps, especially in AI. Despite strong order books, 2–5% workforce cuts are expected as firms restructure to meet future digital demands.
