TCS to Lay Off 12,000 Employees Amid Rising Costs and Skill Mismatches

India’s largest IT services company, Tata Consultancy Services (TCS), has made headlines with its decision to lay off around 12,000 employees, or about 2% of its workforce. While the number may seem modest for a company with over 6 lakh employees, the context and implications reveal a much deeper strategic shift.

Let’s break it down.

Understanding the TCS announcement

Interestingly, this major workforce change was not disclosed in TCS’s Q1 FY26 earnings report. Instead, it came to light through a Moneycontrol interview with TCS CEO K. Krithivasan.

In the interview, Krithivasan clarified that:

• The layoffs are aimed at making TCS leaner, more agile, and future-ready.
• AI-driven productivity gains are not the reason behind the move.
• The core issue lies in skill mismatches and redeployment challenges, particularly at middle and senior levels.
• Despite extensive reskilling efforts, 550,000 employees in basic skills and 100,000 in advanced capabilities, some associates couldn’t be placed into ongoing projects.

He called this “one of the most difficult decisions” of his career, but necessary to align the company with evolving business needs and client expectations.

Q1 FY26 Performance Snapshot: The Backdrop

While the layoff news came via a media interview, TCS’s Q1 FY26 numbers give useful context:

• Total Workforce: 613,069
• YoY Net Headcount Addition: 6,071
• AI-skilled Workforce: 114,000+ trained in higher-order skills
• Net Income: ₹12,760 crore (+6.0% YoY)
• TCS Share Price: Down 1% following the developments

Even with modest revenue growth of 1.3% YoY, TCS had continued hiring. The shift now signals a deliberate pivot from headcount expansion to efficiency and alignment.

What does this mean to Investors?

1. Cost Pressures from Employee Spending

TCS’s FY25 financials show just how significant employee expenses are:

• Employee Benefit Expenses: ₹1,45,788 crore
• Revenue from operation (FY25): ₹2,55,324crore
• Employee Costs as % of Income: 57%
• Median Pay per Employee: ₹8.05 lakh

In this context, a 2% workforce reduction can translate into substantial savings:

• Estimated annual savings: ₹966 crore if layoffs are based on median employee pay (₹8.05 lakh).
• Higher savings potential: ₹2,000 to ₹2,500 crore if the impacted roles earn 2 to 3 times the median pay (₹16 to ₹24 lakh annually), roughly 4 to 5% of TCS’s annual net profit.

Such a move directly improves cost-to-income ratio and margin health, critical in today’s tight-margin environment.

2. This Isn’t a Blanket Cut

Krithivasan made it clear: this isn’t about downsizing for the sake of it.

Instead, it’s a strategic restructuring, aimed at:

• Removing roles that are non-deployable
• Addressing skill mismatches
• Freeing up room for future-focused hiring and reskilling

It marks a shift from scale-driven growth to margin-driven performance, where quality of talent and fit-for-purpose skills outweigh simple headcount.

3. AI Strategy = Rebalancing, Not Replacing

There’s a tendency to assume that AI leads to job cuts. But in TCS’s case, the CEO clarified:

• AI isn’t causing layoffs
• Rather, 114,000+ employees have been trained in advanced AI capabilities
• AI is enabling automation and augmentation, reducing reliance on low-efficiency roles
• But the primary issue remains skill alignment, not automation displacement

In short, AI is transforming roles, not removing them en masse.

Conclusion: A Tough Call, But a Strategic One

TCS’s 12,000 job cuts aren’t just about cost. They’re about making the company leaner, smarter, and better aligned with where the industry is headed. While difficult, this move reflects:

• A shift toward profitability and agility
• Realignment of skills with demand
• And a growing reliance on AI and advanced capabilities

In a hyper-competitive, tech-disrupted landscape, such tough decisions could be vital to long-term sustainability.
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