Tuesday, August 5, 2025

TCS Layoffs: AI Disruption & US Trade Tensions Shake IT Sector

TCS Layoffs: AI Disruption & US Trade Tensions Shake IT Sector 

- Dr.SanjayKumar Pawar

TCS Layoffs: AI Disruption & US Trade Tensions Shake IT Sector

Table of Contents

  1. Introduction
  2. TCS Layoffs: A Symptom of Deeper Trouble
  3. AI Disruption: Transforming the Indian IT Workforce
  4. The Role of US Economic Policy: Fed Rate Standoff and Trade Tariffs
  5. Trump’s Tariff Threats and Kremlin Reactions: New Pressure Points
  6. Russia-India Trade vs US-India Trade Tensions
  7. Indian Apparel and Tech Exports Under Stress
  8. Hiring Slowdown and Structural Shifts in Talent Management
  9. Sector Outlook: 2025 and Beyond
  10. Insights and Implications for India’s Economic Strategy
  11. Conclusion
  12. FAQ

1. Introduction

India’s $250 billion IT industry — once the crown jewel of global outsourcing and consistent economic growth — is now facing a pivotal reckoning. The recent announcement by Tata Consultancy Services (TCS) to lay off 12,000 employees, or 2% of its global workforce, is more than just a corporate move. It's a warning signal. Though positioned as part of a strategy to build a “future-ready” workforce, this decision reflects deeper structural strains within the Indian IT sector.

At the heart of the disruption is the rapid rise of generative AI, which is automating tasks from coding to customer support. Add to that macroeconomic instability, including Trump’s renewed 25% tariff threats targeting India’s Russian oil ties, and delayed rate cuts by the US Federal Reserve, and the industry finds itself cornered.

With over 60% of revenue tied to US markets, Indian IT firms are particularly vulnerable. As global clients delay projects and trim budgets, the once-predictable growth engines are sputtering. The TCS layoffs, though high-profile, may just be the beginning of a larger shift in India’s tech ecosystem — one shaped by AI, geopolitics, and a rapidly evolving global economy.

2. TCS Layoffs: A Symptom of Deeper Trouble

The recent TCS layoffs of 12,000 employees have sent shockwaves through India’s tech corridors, but this move is not a standalone event. It is part of a broader realignment unfolding across the Indian IT industry. Wip for instance, took a ₹247 crore hit in restructuring costs due to severance payouts in Europe. HCL Technologies is scaling down its engineering and R&D talent in overseas markets. Across the board, headcount growth has stagnated — a far cry from the traditional hiring sprees that defined the sector’s growth story.

Key Insight:

“With cost pressures, decision delays, and AI’s rise, IT majors are trimming the fat and doubling down on internal talent,” says Arun Kailasan, Research Analyst at Geojit Investments.

The deeper concern isn’t just about the layoffs — it’s who is being laid off. The brunt is falling on mid and senior-level professionals, many with decades of experience, who are now finding their roles made redundant by automation and Generative AI (GenAI). These aren’t performance cuts. They represent a strategic shift from lateral hiring to AI-aligned reskilling.

IT giants are clearly signaling a move away from traditional workforce models. Instead of ballooning headcounts, they’re focusing on upskilling existing employees to fit into AI-driven workflows. This transformation, while painful in the short term, could redefine how India’s IT services sector competes globally.

For professionals in the industry, this is a wake-up call: reskill, adapt, or risk becoming obsolete. For the economy, it’s a reminder that even marquee sectors must evolve rapidly in the face of disruptive technologies and volatile geopolitics.

3. AI Disruption: Transforming the Indian IT Workforce

India's IT sector is facing a seismic shift — and at the center of this disruption is Artificial Intelligence, especially Generative AI and Large Language Models (LLMs). What began as experimental automation tools are now actively handling critical IT functions like:

  • Code generation
  • Data analysis
  • Application support
  • Testing and documentation

Tasks that once required large teams of engineers are now being done in a fraction of the time — and often with fewer people.

According to BNP Paribas Securities India, this is creating a “paradigm shift” in how IT projects are staffed. The era of aggressive lateral hiring is fading. Instead, Indian IT firms are investing in reskilling existing employees — particularly in areas like AI, cybersecurity, and advanced cloud solutions.

This trend isn’t speculative. The 2025 NASSCOM Tech Readiness Survey found that 42% of IT roles in India will require upskilling by 2026. That’s nearly half the workforce needing new capabilities to stay relevant. The traditional project execution model — built around volume and bench strength — is being replaced by lean, AI-savvy teams.

The challenge, however, lies in bridging the skills gap. Many mid-career professionals now find themselves unprepared for AI-centric roles, leading to stalled deployments and workforce mismatches. Companies that once onboarded thousands of freshers annually are now slowing hiring and shifting focus to internal training bootcamps and AI labs.

The message is clear: AI isn’t just changing tools — it’s changing people. For India’s IT workforce, this is more than a tech upgrade — it’s a career crossroads. The winners will be those who adapt, upskill, and align with the AI-first future rapidly reshaping the global tech industry.

4. The Role of US Economic Policy: Fed Rate Standoff and Trade Tariffs

The Indian IT industry’s fortunes are deeply intertwined with the US economy, which contributes over 60% of its export revenues. However, recent developments in US economic policy are beginning to strain that relationship — both from a monetary and trade perspective.

🔺 US Federal Reserve’s High Interest Rates

The US Federal Reserve’s continued decision to hold interest rates at 4.25–4.5% has had a chilling effect on client spending, especially in discretionary tech sectors such as:

  • 🛒 Retail tech modernisation
  • 🏦 Banking IT transformation
  • 🏥 Healthcare automation and AI adoption

“High interest rates delay client budgets and contract approvals. This hurts Indian IT vendors’ bottom line,” explains Ashish Gupta, Chief Investment Officer at Axis Mutual Fund.

With borrowing costs remaining elevated, US-based enterprises are tightening their belts. This means fewer new projects, delayed renewals, and reduced IT spending, directly impacting companies like TCS, Infosys, and Wipro.

🔻 Trump Tariff Threats & Rising Trade Tensions

The prospect of Donald Trump returning to the White House in 2025 is another storm cloud. His advisors are already floating the idea of 25% tariffs on imports from China and India, specifically targeting sectors like:

  • 👕 Apparel
  • 💻 Software services
  • 💊 Pharmaceuticals

These threats are already translating into tangible challenges for India’s IT sector:

  • 🚫 Project deferrals and freezes during Q1 FY26
  • 🧾 Delays in new RFPs (Request for Proposals)
  • 🛂 Stricter on-site deployment approvals for Indian tech talent in the US

The uncertainty around US-India trade ties is causing clients to hesitate on long-term contracts, forcing Indian IT firms to revise revenue guidance and slow hiring plans.

The double-edged sword of tight US monetary policy and rising protectionist rhetoric is threatening to upend India’s tech export model. For an industry built on predictability and volume, this shift means greater volatility, cautious clients, and a pressing need to diversify market exposure and sharpen tech capabilities.

5. Trump’s Tariff Threats and Kremlin Reactions: New Pressure Points

As the 2025 US presidential election heats up, Donald Trump’s campaign has revived aggressive “America First” trade rhetoric, signaling a return to steep tariffs. This time, India is squarely in the spotlight, facing pressure on two fronts: its dominance in software exports and its deepening trade ties with Russia, especially in energy.

🇮🇳 Why India Is in the Crosshairs

Trump’s advisors have hinted at 25% tariffs on imports from India, targeting:

  • 📦 IT services and BPO exports
  • 🧥 Textiles and apparel
  • 💊 Pharmaceuticals

The logic? To "penalize countries undermining US interests" — and India’s continued import of Russian oil is being framed as such.

🛢️ Russia-India Oil Trade: A Flashpoint

In FY25, India imported over 1.8 million barrels per day of Russian crude, accounting for 35% of its total oil imports. This trade relationship, nurtured in the wake of Western sanctions on Moscow, has helped India manage inflation and stabilize its energy security.

However, Trump’s team views this as supporting Russia indirectly, raising the threat of retaliatory economic action against India.

🇷🇺 Kremlin’s Warning on US Threats

The Kremlin has swiftly responded to Trump’s India remarks, calling any future US sanctions against India a “strategic miscalculation.” Moscow warned that penalizing New Delhi for its sovereign trade choices could destabilize not only the region but also the broader global diplomatic balance.

Russia emphasized that India is a “trusted, neutral energy partner”, and any disruption could push India deeper into the BRICS+ economic block, further drifting away from US influence.

⚠️ What This Means for Indian IT and Trade

  • 🛑 Tariff uncertainty could impact IT contracts, especially in US public sector and defense-adjacent projects
  • 💸 Energy costs may rise if Russian oil flows are disrupted, impacting operating margins across industries
  • 🔁 India may accelerate diversification of trade partners, reducing overdependence on US tech markets

Trump’s tariff threats and Kremlin’s sharp rebuttal have added a new layer of geopolitical risk for Indian businesses. As diplomacy clashes with trade, India’s IT and energy sectors find themselves on unstable ground, needing agile policy responses and deeper multilateral partnerships to weather what lies ahead.

6. Russia-India Trade vs US-India Trade Tensions

As global geopolitics reshapes economic alliances, India is walking a fine line between two powerful partners — the United States and Russia. While India and the US have strengthened defense cooperation, trade relations remain strained and inconsistent.

⚠️ Key Tensions in US-India Trade

Despite being India’s largest trading partner, the US has maintained high tariffs on key Indian exports such as:

  • 🧥 Textiles and garments
  • 💊 Generic pharmaceuticals
  • 🏗️ Steel and aluminum products

Additionally, no comprehensive Free Trade Agreement (FTA) has been finalized between the two countries, despite years of negotiations. The lack of a structured trade pact creates uncertainty for Indian exporters, especially in sectors like IT services, which account for a massive share of India’s export revenue.

Further complicating matters is India’s continued oil trade with Russia, which the US views with skepticism amidst its broader sanctions regime.

🔄 Rising Russia-India Trade

In contrast, Russia-India trade is thriving. India’s exports to Russia grew by 23% year-on-year in H1 2025, driven by:

  • 🛢️ Energy security collaborations
  • 🚛 Increased machinery and engineering goods
  • 💱 Use of rupee-rouble payment mechanisms

Meanwhile, exports to the US dropped by 7.2%, particularly in IT services and consumer goods, reflecting both demand-side weaknesses and political uncertainty related to trade policy.

⚖️ India’s Geoeconomic Balancing Act

India now faces a complex geoeconomic challenge:

  • 🔁 How to deepen its strategic partnership with the US without sacrificing its economic interests with Russia
  • 🧮 How to reduce dependence on any one partner, diversifying trade with Europe, Southeast Asia, and Africa
  • 🛡️ How to shield its tech sector from protectionist US policies, while building resilient export pipelines

This balancing act becomes more precarious with the prospect of a Trump presidency, where unilateral trade decisions and tariffs could escalate tensions even further.

India’s dual engagement — building defense bridges with the US while boosting economic ties with Russia — is increasingly under strain. As US-India trade talks stall and Russia-India commerce deepens, New Delhi must chart a pragmatic course that protects both its economic stability and strategic autonomy in an increasingly multipolar world.

7. Indian Apparel and Tech Exports Under Stress

India’s export engine, particularly in apparel and IT services, is feeling the heat from a volatile global landscape. According to the Federation of Indian Export Organisations (FIEO), apparel exports to the United States declined by 11% in Q1 FY26 — a worrying sign for a sector that employs millions and contributes significantly to India’s foreign exchange reserves.

👗 Apparel Exports: Caught in a Trade Storm

Three main factors are driving this downtrend:

  • ⚠️ Anticipated US tariffs under a possible Trump administration are making buyers cautious
  • 🌎 Re-routing of supply chains to countries in Latin America and Southeast Asia (e.g., Mexico, Vietnam) due to nearshoring
  • 📉 Softening retail demand in the US, driven by high interest rates and inflation fatigue among consumers

India’s apparel sector, known for its price competitiveness and skilled labor, is now struggling to retain contracts in the face of rising global protectionism and shifting buyer preferences.

💻 IT Services: Warning Signs of Saturation

India’s IT exports, traditionally the powerhouse of the service economy, are also showing early signs of saturation:

  • 📉 Shrinking project pipelines from US clients, especially in discretionary spending areas like retail and healthcare tech
  • 💸 Flat billing rates, as competition intensifies and clients demand more for less
  • 🌐 Overdependence on offshore delivery models, which are vulnerable to visa restrictions and wage arbitrage limits

While firms like TCS, Infosys, and Wipro are pivoting towards AI, cybersecurity, and cloud transformation, these domains are still maturing and not large enough (yet) to offset losses in traditional IT projects.

⚖️ Sector-Wide Implications

These dual export setbacks point to a broader stress in India's trade narrative, especially in sectors with heavy US exposure:

  • 🛡️ India must diversify its apparel markets to Europe, Middle East, and Africa
  • 🧠 IT companies need aggressive reskilling to reduce saturation and open new growth verticals
  • 🧾 Policy push on trade facilitation and export incentives is urgent to prevent further erosion

As apparel and tech exports come under pressure, India’s export resilience will depend on how quickly it adapts to changing global dynamics. With looming tariffs, slower US demand, and tech transformation challenges, the time for strategic pivots is now.

8. Hiring Slowdown and Structural Shifts in Talent Management

The Indian IT sector, once renowned for mass hiring drives and thousands of fresh engineering recruits each year, is undergoing a tectonic shift in workforce strategy. According to TeamLease Digital, hiring in FY26 is 20–30% lower year-on-year, as tech giants embrace leaner, AI-ready operating models.

📉 Key Indicators of the Hiring Slowdown

Major players like TCS, Infosys, Wipro, and HCL Technologies are implementing:

  • 🧮 “Zero bench” policies – Every available employee is reassigned to billable work before new hires are considered. This minimizes idle cost but also tightens lateral and fresher hiring.

  • 🎓 Minimal campus recruitment – Traditional bulk hiring from Tier 1 and Tier 2 engineering colleges has slowed dramatically, affecting placement trends across India.

  • 📲 Internal AI certifications – Upskilling is now mandatory. Employees are being nudged to complete GenAI, cloud, and cybersecurity certifications to stay relevant in the new work model.

🔄 Strategic Talent Transformation in Progress

This is not just a hiring freeze — it is a strategic shift in talent architecture. The following trends are reshaping how Indian IT companies manage their workforce:

  1. ⚙️ Automation-first project design
    Projects are now being built with automation in mind from day one, reducing human intervention in development, testing, and support.

  2. 🧠 Niche hiring for emerging roles
    Firms are prioritizing contractual and gig-like hires for specific AI/ML, data science, and blockchain tasks — creating a decentralized and flexible talent pool.

  3. 🌐 Hybrid and global delivery models
    With more projects handled offshore and with smaller cross-functional teams, firms are emphasizing agility over scale.

🚨 What It Means for the IT Workforce

This evolution signals a structural overhaul, not a temporary slump:

  • 🎓 Freshers must adapt by learning AI/ML, cybersecurity, cloud engineering, and DevOps
  • 💼 Mid-career professionals face pressure to upskill or risk redundancy
  • 🧩 Talent management is moving toward “just-in-time” resourcing, similar to how manufacturing optimized inventory in the past

The hiring slowdown isn’t a crisis — it’s a correction. Indian IT’s talent blueprint is being redrawn around skills, flexibility, and automation. To thrive, professionals and policymakers alike must adapt to this AI-first future.

9. Sector Outlook: 2025 and Beyond

India’s $250+ billion IT sector is heading into uncharted territory, facing structural, technological, and geopolitical headwinds that will define its medium-term outlook. According to Nuvama Research, the demand environment will remain subdued throughout FY26, with any meaningful recovery likely only by Q3 FY26, contingent on a few key global shifts.

🔮 Conditional Recovery Scenarios

For the IT sector to stabilize and grow again, three major macroeconomic and political factors must align:

  • 🏦 US Federal Reserve must begin rate cuts to ease capital spending by enterprise clients.
  • 🌍 Global macroeconomic stability must return, especially in light of upcoming elections in the US and policy uncertainty.
  • 🇺🇸 Clarity on Trump’s tariff stance is essential, as ongoing rhetoric continues to stall decision-making in boardrooms.

📉 Lower Growth Projections, Realignment Ahead

As per Kotak Securities, if no fresh trade shocks or geopolitical escalations occur, Indian IT may see a modest rebound in the second half of FY26. However, the growth rate will remain modest, and companies are already preparing for a new normal.

Projected Revenue Growth FY26:

  • 📊 3.5% to 4.2%, well below the 8–12% CAGR seen between 2010–2020.

🧠 Strategic Bets by Indian IT

To weather the current downturn and future-proof themselves, Indian IT majors are shifting focus toward:

  • 🤖 Building GenAI-powered platforms for enterprise clients in BFSI, retail, and healthcare.
  • 🌐 Global delivery model expansion, leveraging smaller agile teams across multiple geographies.
  • 🧪 Investment in R&D for AI + Cloud fusion services, enabling hyper-personalized and intelligent tech stacks.

These strategies reflect a shift from headcount-based growth to value-based services with lower manpower intensity and higher tech leverage.

⚠️ What to Watch in H2 FY26

  • 🔍 US election outcomes and Trump’s policy trajectory
  • 💹 Fed rate policy in Q4 2025 and Q1 2026
  • 🔄 Trade negotiations and tariff impact on key export sectors like IT and apparel

While India’s IT sector is not in crisis, it is in correction mode — recalibrating to survive AI disruption, rising protectionism, and client conservatism. For the long haul, only firms that invest in innovation and agile delivery will stay ahead.

10. Insights and Implications for India’s Economic Strategy

India’s IT sector — once the bedrock of its global services brand — is undergoing a tectonic shift. The recent TCS layoffs, combined with rising US trade tensions, Trump’s tariff threats, and the AI revolution, are all signals that India must rethink its economic and export strategy in a more self-reliant and future-facing manner.

💡 The Need for a Decoupled IT Growth Model

India’s over-reliance on the US for over 60% of its IT revenue makes it vulnerable to political shifts, rate policies, and protectionist measures. The writing on the wall is clear: it's time to de-risk India’s IT sector.

Key Focus Areas:

  • Reduce dependency on single geographies like the US
  • Move beyond low-cost outsourcing to high-value digital services and platforms
  • Strengthen AI-native talent pipelines to ensure India leads, not follows, in tech innovation
  • Expand tech product exports (SaaS, cybersecurity tools, healthtech, edtech)

🌐 Bilateral Diversification is Critical

India must now accelerate trade diversification by actively pursuing:

  • FTA negotiations with the EU and UK, both of which offer high-value markets and tech cooperation potential
  • Strategic expansion into emerging non-US markets like:
    • EU: for data privacy-compliant services and green tech
    • ASEAN: for fintech, logistics, and SME digitalization
    • Africa: a future growth engine for digital education, healthtech, and BPO

Diversified bilateral relations will help India mitigate the risks of US-centric shocks, whether they stem from a Trump-era trade war, Fed monetary tightening, or domestic policy shifts.

🤝 Trade Policy Must Be Strategic, Not Reactive

India’s ongoing delay in signing FTAs, especially with developed markets, is a strategic disadvantage. Unlike Vietnam or Mexico, which have rapidly gained from US-China de-risking, India is lagging. To stay competitive:

  • Fast-track FTA talks with the EU and UK
  • Explore currency swap arrangements for trade with Russia and Africa
  • Encourage cross-border digital cooperation in AI governance, data storage, and IP frameworks

India’s IT prowess remains strong, but it needs a modernized economic playbook — one that combines AI leadership, trade agility, and geographical diversity. The age of software-as-outsourcing is over. The next decade belongs to those who build, scale, and export AI-native tech for the world.

11. Conclusion

The TCS layoffs are not just about numbers—they mark the beginning of a paradigm shift in India’s $250 billion IT sector. As Generative AI and automation accelerate, and US economic uncertainties and Trump’s tariff threats loom large, Indian IT firms are no longer operating in a stable, predictable global environment.

This moment is a wake-up call. The traditional growth levers—low-cost outsourcing, US-centric contracts, and linear headcount expansion—are fading. Instead, the path ahead demands a recalibrated vision centered on AI-native capabilities, diversified trade partners, and a future-ready workforce.

Key Takeaways:

  • AI is disrupting mid-skill IT jobs faster than expected
  • US monetary policy and trade threats are impacting deal flow
  • Reskilling and internal talent mobility are now mission-critical
  • India must diversify IT exports beyond the US and into new regions

To stay competitive, India must align policymakers, academia, and industry to proactively navigate this transformation. The next 12 months are pivotal. Bold decisions made now will shape whether Indian IT emerges stronger, smarter, and more global — or faces sustained headwinds in the AI-first, geopolitically fractured future.

12. FAQ

Q1. Why did TCS lay off 12,000 employees?
TCS cited the need to realign talent and become future-ready in areas like AI, cloud, and automation. However, it is also part of a larger cost-cutting and talent-reshaping strategy amid global uncertainty.

Q2. How is AI affecting Indian IT jobs?
AI is automating many tasks previously done by humans (coding, analysis, testing), leading to redundancy in traditional roles. Companies are focusing on upskilling and internal talent deployment.

Q3. What are Trump’s tariff threats towards India?
Trump’s campaign suggests imposing 25% tariffs on imports from India, particularly in sectors like apparel and IT. This would increase trade tensions and impact exports.

Q4. What is the Kremlin’s response to Trump’s India comments?
Russia has criticized Trump's threats against India over Russian oil trade, calling them disruptive and unnecessary. It warns such policies could damage global diplomatic balance.

Q5. Will the Indian IT sector recover in FY26?
Recovery is possible in late FY26 if the US economy stabilizes, interest rates decline, and trade policies become predictable. Until then, uncertainty remains high.

Reference

🔹 TCS Layoffs & Indian IT Sector Trends

🔹 AI and Workforce Displacement

  • Gupta, A. (2025). CIO remarks on US interest rate impact and tech hiring. In Axis Mutual Fund – Sectoral Insights Q1 FY26. Axis Mutual Fund.

  • Nuvama Research. (2025). Demand outlook for Indian IT amid global volatility – July 2025. https://www.nuvamawealth.com/research-reports

🔹 US Tariffs, Trump Trade Policy & Global Trade Uncertainty

🔹 Impact on Apparel & Export Sectors


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