Layoffs Across IT Services Industry

Syllabus: GS3/Economy

Context

• Recently, Tata Consultancy Services (TCS) has announced plans to lay off approximately 12,261 employees — about 2% of its global workforce – during FY2026.
  • It has come under scrutiny for its revised Bench Policy.

What is the Bench Policy?

• The ‘Bench’ refers to employees who are not currently assigned to active, billable projects but remain on payroll. These individuals may be:
  • Awaiting project allocation;
  • Undergoing training;
  • Transitioning between roles.
• Major IT companies have historically maintained a sizable bench to ensure agility in responding to client demands.
• The Nascent Information Technology Employees Senate (NITES) has formally complained to the Ministry of Labour and Employment, calling the policy ‘coercive’, ‘punitive’, and ‘inhumane’.

Key Reasons Behind the Change

• Cost Optimization: With global tech spending under pressure, companies are streamlining operations to reduce overhead.
  • Maintaining a large bench is expensive and inefficient in lean times.
• Skill Mismatch & Redeployment Challenges: As delivery models shift toward AI, cloud, and cybersecurity, many employees — especially in mid and senior roles — struggle to transition into new tech-heavy positions.
• AI & Automation Impact: While not the sole reason, AI is reshaping job roles. Entry-level tasks are increasingly automated, reducing the need for large bench pools.
• Product-Centric Delivery Models: IT firms are moving away from traditional project-based staffing to agile, product-focused teams. This reduces reliance on bench strength and demands continuous upskilling.

What’s Driving Layoffs in India’s IT Sector?

• Shift in Delivery Models: Companies are transitioning to agile, product-centric models, reducing the need for traditional project managers and legacy roles.
  • There’s a growing skill gap, especially among mid and senior-level employees, who struggle to adapt to AI, cloud, cybersecurity, and other emerging tech.
• Global Economic Uncertainty: A volatile global economy and muted client spending have led to cautious hiring and workforce trimming.
  • Export-driven IT firms are especially vulnerable to global recessions and inflationary pressures.
• Skill Misalignment: There’s a growing mismatch between academic curricula and industry demands, especially in emerging tech like AI and cybersecurity.
  • Challenges in reskilling senior professionals for tech-heavy roles due to cognitive rigidity and lack of practical exposure. 

Repercussions of Layoffs in India’s IT Sector  

• Employee Concerns: Rising job insecurity is affecting employee morale and mental health. The stricter policies have led to stress, uncertainty, and fear of termination. It fosters:
  •  A culture of fear and pressure;
  •  Psychological burden on benched employees;
  •  Reduced morale, especially among freshers and those in redundant roles;
• Strain on Education & Career Pathways: The IT sector has long been a gateway to upward mobility for engineering graduates.
• Economic & Structural Challenges: Layoffs reflect deeper structural issues in India’s economy—where quality employment hasn’t kept pace with growth.
  • The Bench Policy Reforms are reducing the buffer workforce, impacting job stability.
  • Startups and GCCs (Global Capability Centres) are emerging as alternatives, but they can’t absorb the displaced workforce at scale.
• Global Dependencies & Vulnerabilities: India’s IT firms are heavily reliant on export markets, especially the U.S. and Europe.
  • Global recessions, inflation, and tech budget cuts abroad directly affect hiring and project volumes in India.
  • H-1B visa holders face added pressure, with long wait times and limited fallback options.
• Transparency & Fairness: Critics argue that the policies lack empathy and may disproportionately affect freshers and mid-career professionals.

Way Forward 

• Reimagining Bench Policy with Empathy & Agility: Instead of rigid limits (e.g., TCS’s 35-day rule), companies could adopt tiered bench durations based on experience and skill relevance.
• Investing in Scalable Upskilling: Focus on GenAI, cybersecurity, cloud, and full-stack development.
  • Collaborate with government and edtech firms to subsidize training for displaced workers.
  • Offer bonuses or fast-track promotions for employees who complete critical tech certifications.
• Strengthening Labor Protections & Policy Reform: IT unions like NITES and FITE are urging the government to bring IT firms under the Industrial Disputes Act, ensuring due process in terminations, along with Grievance Redressal Mechanisms and Policy Dialogue.
• Diversifying Employment Pathways: Global Capability Centres and tech startups are emerging as alternative job creators.
• Embracing a Human-Centric Tech Transition:
  • Mental Health Support: Provide counseling and wellness programs during transitions.
  • Ethical AI Deployment: Ensure AI adoption doesn’t disproportionately displace vulnerable roles without a safety net.
  • Inclusive Growth: Prioritize employment equity across Tier-II and Tier-III cities.

Source: LM