This Threat Is Looming Over The Dreams Of The Middle Class In India

India’s software industry is going through a period of major change. Tata Consultancy Services (TCS), the largest private sector IT company in the country, has announced the elimination of more than 12 thousand jobs at the mid and senior management level. This will reduce the number of employees of the company by two percent. This company employs more than five lakh IT professionals and is considered an important part of the $283 billion Indian software industry.

It is called the backbone of white-collar jobs in the country. White collar jobs are such jobs in which work is done in an office or professional environment. These involve less physical labor and more mental or management work. TCS says that this step has been taken to make the company ‘future-ready’ as it is investing in new areas and adopting artificial intelligence on a large scale.

For the last several decades, companies like TCS have been making software for global customers at low cost, but now due to artificial intelligence, many tasks are being automated and customers are demanding solutions based on new technology. The company said, “Many re-skilling and recruitment initiatives are going on in new roles. Those colleagues whose recruitment is not possible are being released from the company.”

What is the basic reason for the layoffs?

Neeti Sharma, CEO of staffing firm TeamLease Digital, told BBC, “In IT companies, manager level people are being removed and those employees are being kept who work directly, so that the workforce can be organized and capacity can be increased.” He also said that recruitment has increased in new areas like AI, cloud and data security, but new recruitments are not happening in proportion to the speed at which jobs are being lost.

Experts say that this decision also highlights the ‘skill gap’ in the country’s software industry. According to Rishi Shah, an economist with business consultancy firm Grant Thornton Bharat, “Generative AI is leading to a rapid increase in productivity. This change is forcing companies to rethink their workforce structure and how to deploy resources in roles that involve AI.”

The National Association of Software and Services Companies (NASSCOM) estimates that India will need 1 million AI professionals by 2026, but currently less than 20 percent of the country’s IT professionals have AI skills. Tech companies are spending more on training to create new AI talent, but those who do not have the required skills are being fired.

Impact of Trump’s tariff decision

Apart from the changes brought about by the advent of AI, global investment banking firm Jefferies says TCS’ announcement also highlights the “broader growth challenges” in India’s IT sector. “Net hiring has been weak at the industry level since FY22, driven by a long-term decline in demand,” Jefferies wrote in a note.

Demand for IT services in the US, which accounts for half of the total revenue of Indian software companies, has also been affected by Donald Trump’s tariff policies. Although tariffs primarily affect goods, analysts say companies are holding back on additional IT spending while assessing tariff-related uncertainties and the economic impact of their global sourcing strategies.

According to Jefferies, “The adoption of AI technology is pushing US companies to reduce costs, forcing large IT companies to operate with fewer staff.” Its impact is now being felt in cities like Bengaluru, Hyderabad and Pune, once the epicentres of India’s IT boom. An estimated 50,000 jobs were lost in the sector last year. The number of new hires at India’s top six IT companies fell by 72%.

Impact on the Indian economy

This could also impact India’s broader economy, which is already struggling to create enough jobs for the millions of young graduates who join the workforce each year. In the absence of a strong manufacturing sector, these software companies made India the world’s back office in the 1990s and were the preferred choice for millions of new IT workers. They created a new affluent middle class that fuelled growth in cities and increased demand for homes with cars.

But as stable, well-paid jobs dwindle, India’s service sector-led economic growth is being questioned. Until a few years ago, India’s big IT companies employed about 6 lakh new graduates every year. According to TeamLease Digital, this number has come down to about 1.5 lakh in the last two years. Other emerging sectors such as fintech startups and global capability centers are employing the rest of the youth.

But according to Neeti Sharma, “at least 20-25 percent of new graduates will not have any jobs. Global capability centers will never be able to hire in large numbers like IT companies.” Many big business leaders in India have expressed concern over the economic impact of these trends. Reacting to TCS’ announcement, D Muthukrishnan, a major mutual fund distributor in South India, wrote on X that ‘the declining IT sector will have a negative impact on many supporting services and industries, harm real estate and give a big blow to premium consumption.’

A few months ago, Arindam Paul, founder of motor technology company Atomberg, warned on LinkedIn that AI could have a serious impact on India’s middle class. He wrote, “About 40-50 percent of white-collar jobs that exist today could disappear. This will directly mean the end of the story of the middle class and consumption.” How quickly Indian tech companies keep pace with the changes in AI will determine whether India will be able to maintain its lead in the global technology sector. This will also determine whether India will be able to maintain the pace of GDP by expanding the scope of its middle class.

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