Why is TCS laying off 12,000 employees? CEO insists 'not driven' by margins, AI productivity gains

Tata Consultancy Services (TCS), India’s largest IT services firm, plans to lay off around 12,000 employees, approximately 2% of its global workforce, over the course of FY26.

The layoffs, primarily targeting mid- and senior-level employees, come even as the company added 5,000 new hires in the April–June quarter, bringing its total headcount to 613,069 as of June 30.

In an interview with Moneycontrol, TCS CEO and Managing Director K Krithivasan said the decision reflects a shift in operating models, particularly due to the growing use of AI, changes in client expectations, and the move toward product-aligned, agile delivery structures.

“Clients are moving more towards product-aligned models... the way we work is changing,” Krithivasan said. “This also means that, as an organisation, we have to be futuristic, we have to be agile, we have to be future ready. We have to have the right skillsets to work in the future.”

Skill mismatch, not AI job losses

Krithivasan said that the layoffs are not about AI-led productivity gains replacing jobs, but rather the inability to redeploy certain roles effectively in the company’s new structure.

“This is not because of AI giving some 20% productivity gains. We are not doing that,” he said. “This is driven by where there is a skill mismatch, or, where we think that we have not been able to deploy someone.”

TCS has invested heavily in reskilling programs, training over 550,000 employees in foundational AI skills and 100,000 in advanced AI.

However, not all employees, particularly at senior levels, have been successfully redeployed, prompting the company to make what Krithivasan called “one of the toughest decisions” of his tenure.

End of certain roles?

The restructuring also reflects a decline in demand for non-technical, managerial roles such as project and program managers, as new delivery models require more techno-functional talent and direct collaboration with clients.

“When we did programs in the old waterfall method, we had multiple leadership teams driving it,” Krithivasan said. “But as we move towards a more product-aligned model where we are more agile, where clients also work along with us -- clients bring in their leadership team, the pure non-technical managerial talent isn't required.”

Layoffs with support

TCS said impacted employees will receive severance packages in addition to notice-period compensation, along with extended insurance, outplacement support, and counselling services. The layoffs will not be limited by geography or business vertical and will be implemented gradually through FY26.

“We are doing this with a lot of compassion and empathy,” the CEO added, emphasising that the company is also exploring potential placements within other Tata Group companies.

When asked about the impact on margins, he insisted the decision was not driven by margins.

“But once it is visible, I am sure Samir (CFO Samir Seksaria) will call it out at the appropriate time, what will be the impact or what is the charge we are taking. The motivation is not margins, so we have not gone over this.”