Ten to fifteen million Indians work in IT services and business process outsourcing. They buy homes, take flights, send children to private schools, and anchor a consumption economy that has made India the fastest-growing large economy on the planet. Generative AI is now dismantling the hiring model that created them.

The evidence is piling up across balance sheets and WARN notices. Tata Consultancy Services, India’s largest IT firm, cut roughly 12,000 jobs last year — about 2 per cent of its workforce — and plans to hire just 25,000 fresh graduates this year, down from an average of 40,000 over the past three years. Infosys has paused fresher onboarding entirely. Cognizant launched an AI transformation programme called Project Leap that could eliminate up to 4,000 roles. Net hiring by India’s top five IT companies fell by approximately 7,000 in the financial year ended March 2026, according to Sushovon Nayak, senior research analyst at Anand Rathi Institutional Equities. Gross hiring across the sector dropped from a five-year average of around 230,000 to roughly 170,000.

Revenue up, headcount down

Here is what makes this cycle different from previous downturns: revenue is not falling. TCS reported a 1.3 per cent revenue increase in Q1 FY26. Infosys grew 7.5 per cent. HCLTech led with 8.1 per cent. These companies are making more money with fewer people.

Revenue per employee is rising across top IT majors, marking a structural shift from the decades-old pyramid model — hire thousands of fresh graduates cheaply, train them, bill them out at margin. “FY26 saw a structural reset where companies focused on productivity-led growth rather than large-scale hiring,” Kapil Joshi, chief executive of IT staffing at Quess Corp, told CNBC. “Headcount growth has flattened, even as revenues remain stable.”

AI and automation are being embedded into core service delivery. TCS CEO K Krithivasan described deploying “AI at scale,” saying “ways of working are changing.” The industry is moving, in the words of Nasscom president Rajesh Nambiar, “from volume hiring to deliberate talent pool creation aligned with future capabilities.” More than two million professionals have been upskilled in AI, including up to 300,000 in advanced capabilities, according to Nasscom.

The development model at stake

This is not just an industry story. It is a development model story. For two decades, India outsourced its way into the middle class. The IT sector turned a vast pool of low-cost, English-speaking engineering graduates into exportable human capital. Now AI has inverted the arbitrage. Cheap labour matters less than cheap compute.

The question is what absorbs those workers next. Not manufacturing: despite ten-plus years of the “Make in India” programme, manufacturing remains a relatively small share of the economy, as Richard Rossow, senior adviser at the Center for Strategic and International Studies, told CNBC. Close to 45 per cent of India’s workforce still depends on agriculture, which contributes only 15 to 16 per cent of GDP, according to Bernstein. The growing gig economy offers mostly low-value employment.

“Without job creation, India’s consumption-led economy will struggle to grow, limiting investment demand at a time when the export growth-led model is at risk globally,” said Shumita Sharma Deveshwar, chief India economist at GlobalData TS Lombard. Deloitte projects IT services salary growth will decline from 7.6 per cent in 2025 to 6.9 per cent in 2026 — the lowest among all sectors the firm tracks.

Political economy of the bench

Global equity research firm Bernstein wrote an open letter to Prime Minister Narendra Modi in April warning of a deepening employment crisis. India’s IT minister, Ashwini Vaishnaw, acknowledged to CNBC-TV18 that tech-sector job disruption was a “real challenge” and pointed to reskilling as the answer.

Reskilling is the answer everyone gives, because the alternative — that India’s most reliable engine of white-collar employment is structurally contracting — is politically explosive in the world’s most populous country. Nasscom projects FY27 will bring a “maturation phase of enterprise AI spending,” with growth becoming more uneven and firms diverging “based on domain depth, AI readiness, and talent capabilities.” Translation: winners and losers.

India’s headline GDP numbers will likely stay strong. The IMF reaffirmed in April that India will remain the fastest-growing large economy in 2026. But strong GDP masking rising unemployment is a familiar pattern in developing economies, and it rarely ends gently.

Sources