By Dr. Gyan Pathak
Announcement by Tata Consultancy Service (TCS), India’s largest private sector employer employing about 600,000, to lay off its 12,000 employees, has instilled a grave insecurity feeling not only among the workers, but has also raised serious concern in the entire IT sector. TATA is known for providing lifetime employment, and therefore, TCS shedding about 2 per cent of its workers is a serious matter.
Deployment of Artificial Intelligence (AI) has been changing the IT sector faster than any other industry or sector across the world, and India is not an exception. Nevertheless, the CEO and managing director of TCS K Krithivasan has attributed the move not to AI adoption, but to “limited deployment opportunities and skill-mismatch”.
Taken on face value, it may be possible that AI may not be the factor for the current lay off in the TCS, but there is no reason to believe that “limited deployment opportunities and skill-mismatch” has nothing to do with the adoption of AI in the IT sector. Hence, the IT sector in generally sees the layoffs as a sign of broader and disruptive changes underway, only to be amplified by the growing influence of AI.
When we see the finances of some of the Indian IT sector companies, one can perceive the disruption. TCS itself has put on hold the salary hikes, and lateral hiring frozen. Stock holders of the company know how their returns from the holding have almost nil in the last four years. HCL is giving only 1-4 per cent raise in salary amount, but middle-level employees are yet to get any hike. In the last quarter, even Infosys has been reported to have employed only 210 people. Infosys and Wipro have also been reporting muted year-on-year growth.
Revenues of all major service provider Indian IT companies are either falling or almost stagnated, chiefly because of adverse economic, trade, and tariff conditions of US and European countries and AI automation. The entire West, from where Indian companies have been getting work, has been affected by the AI deployment, which in turn has been affecting the India IT companies.
All these show that the business model in the IT sector has been changing fast across the world along with deployment of new technology such as AI and unavailability of skilled workforce, that TCS called “limited deployment opportunities and skill-mismatch. It should be noted that TCS and many other Indian IT companies have traditionally been relying on India’s vast pool of low-cost skilled labour. They were engaged by and large in providing software services.
It is clear from the TCS layoffs that this service model is now lagging behind and is not able to compete with the changing ground realities. Their global clients are demanding services at competitive prices and technologically better. They have been rapidly deploying AI driven automation that has already automated many of their tasks, many of which were repetitive. Not only entry level routine jobs are being displaced, but also it is transforming the mid-level jobs. For many of the tasks, the global companies no longer require to higher services of the Indian IT companies.
This is the general condition of the IT sector, and it can’t be ignored only on account of a few IT companies’ announcements that they will be employing more people in near future. For example, Infosys has announced that they have hired 17,000 people in the first quarter of the current financial year and they plan to hire another 20,000 graduates this year itself. The CEO of Infosys has credited AI, cloud, and cost efficiency as key growth driver for such a growth.
It indicates that deployment of AI and other new and innovative technologies only can contribute to the growth of the India’s IT sector along with revamping of the current service-based business model, if possible, they will have to opt for product-based business model. It is more important because, many of the global companies are now opening their Global Capability Centres (GCCs) in India to reduce their dependence on Indian IT companies and to reduce their costs. It is to be noted that GCC ecosystems grew by 40 per cent in 2023-24, while India’s service-based IT companies grew by only 5 per cent.
The other thing to note is that Indian IT companies will have to compete in costs and technology with the emerging IT companies of other countries, such as Vietnam, Philippines, Mexico and so on.
The new emerging situation is likely to severely impact the entire IT sector of the county which contributed 7.5 per cent to India’s GDP in 2022-23 and employs over 50 lakh people.
The earlier assessment of Indian IT sector had suggested that India will be experiencing robust growth, driven by increased digital transformation across industries and a surge in global demand for IT services in 2025. IT exports were projected to reach $210 billion and overall IT spending in the country was expected to increase by 11.2 per cent to nearly $ 160 billion. Job opportunities were expected to rise by 15-20 per cent in the IT across various industries.
Faster adoption of AI and other technologies, change in business model, and large scale skilling and reskilling are urgently required to overcome the challenges that India’s IT sector is currently facing. (IPA Service)
