Tata Consultancy Services (TCS), India’s largest IT services provider, has announced significant measures to address ongoing economic uncertainties and technological disruptions impacting its global operations. The company, headquartered in Mumbai and a subsidiary of the Tata Group, has decided to halt recruitment of senior staff and freeze yearly salary increments across its workforce of over 600,000 employees. This decision comes on the heels of TCS’s plan to reduce its global workforce by approximately 2%, affecting around 12,000 employees, primarily in middle and senior management roles. These steps, reported on July 29, 2025, reflect a broader strategy to adapt to a challenging market environment and prepare for an AI-driven future.
Strategic Workforce Reduction
TCS’s decision to cut 12,000 jobs, announced on July 27, 2025, marks the largest workforce reduction in the company’s history, surpassing its 2015 layoffs of approximately 3,000 employees. The layoffs target middle and senior management, a move driven by economic uncertainties and the increasing adoption of artificial intelligence (AI) technologies, which are reshaping the IT services landscape. According to industry analysts, this reduction is part of TCS’s effort to rebalance its workforce to maintain profitability and competitiveness in a market where clients are demanding significant cost reductions, ranging from 15-30%. The company has emphasized that the transition will be handled with care to minimize disruptions to client services, offering affected employees severance benefits, outplacement assistance, extended insurance coverage, and counseling.
The layoffs are accompanied by a stricter bench policy, requiring unassigned employees to secure billable projects within 35 days or face termination. This policy, already implemented in cities like Hyderabad, Pune, Chennai, and Kolkata, has drawn criticism from employee unions, who describe it as “inhumane” due to its potential impact on career growth and job security. The Nascent Information Technology Employees Senate (NITES) has written to India’s Labour Minister, Mansukh Mandaviya, urging a halt to these terminations, arguing that they set a dangerous precedent for worker protections in the Indian IT sector.
Salary Freeze and Hiring Pause
In addition to the layoffs, TCS has suspended annual salary increments globally, a decision aimed at ensuring long-term financial stability amid a slowdown in IT sector demand. This follows a period of modest salary hikes, with increments in FY25 ranging between 4-8%, down from 7-9% in FY24 and 10.5% in FY22. The freeze is particularly significant as it coincides with a halt in senior-level hiring, with onboarding delays for experienced hires extending beyond 65 days. These measures are part of a broader cost-cutting initiative, as confirmed by internal communications citing global trade and macroeconomic uncertainties. A mid-level employee noted to The Economic Times that team leaders have imposed restrictions on nearly all external recruitment, signaling a “huge operational cost cutting” effort.
Industry Context and Implications
The IT services sector, generating over $283 billion in revenue, is facing a pivotal moment. TCS’s actions reflect broader industry trends, as companies like HCLTech are also reportedly planning layoffs. Weak demand, persistent inflation, and AI-driven technological shifts have prompted clients to reduce non-essential spending, putting pressure on IT firms to streamline operations. According to HFS Research CEO Phil Fersht, AI is diminishing the labor-intensive service delivery model, forcing providers like TCS to adapt to remain competitive. Investment firm Jefferies has warned that TCS’s workforce reduction could lead to short-term execution challenges and higher attrition rates in the long term, signaling a weak demand environment for the sector.
TCS’s financial performance has also been under scrutiny, with its shares declining nearly 30% over the past year, making it one of the weakest performers in the Nifty IT index. In contrast, competitors like Infosys, HCLTech, and Wipro have seen less severe share price drops. Despite these challenges, TCS reported a robust pipeline and plans to onboard 42,000 fresh graduates in FY26, indicating a focus on building a future-ready workforce through retraining and AI adoption.
Employee and Union Response
The layoffs and salary freeze have sparked significant backlash. NITES has labeled the dismissals as “illegal” and called for accountability, particularly highlighting the contrast between the CEO’s 4.6% salary increase to Rs 26.5 crore in FY25 and the job cuts. The union’s third letter to the Labour Ministry emphasizes the need for stronger worker protections to prevent employment uncertainty. Employees have expressed concerns over job security, with some alleging pressure to resign under the new bench policy.
Looking Ahead
TCS’s strategic moves underscore the transformative impact of AI and economic challenges on the IT industry. While the company aims to mitigate the impact on affected employees through support measures, the scale of the layoffs and cost-cutting efforts has raised concerns about the sector’s stability. As TCS navigates this transition, its ability to balance cost efficiencies with employee welfare and client demands will be critical to maintaining its position as a global IT leader.
