Why is TCS laying off 2% of its staff?

The company cites several core reasons:

• Skills Mismatch and Deployment Challenges: Despite extensive upskilling initiatives, TCS reports persistent challenges in placing some employees, especially in middle and senior roles, into suitable projects. The layoffs are focused primarily on these segments.
• Internal Policy Changes: TCS has revised its bench management policy, capping “bench” time (unassigned or non-billable status) at 35 days annually and requiring a minimum of 225 billable days per year. Employees unable to meet these criteria may face disciplinary action, including layoffs.
• Strategic Realignment (Not AI-Driven): While some industry observers see workforce reductions as a response to AI automation, TCS CEO K Krithivasan explicitly stated that these layoffs are not driven by automation or AI, but by ongoing realignment for a more future-ready, agile workforce

Who is impacted?

• The cuts will be global, not restricted to a specific region or business function.
• Most affected are middle and senior management roles, as well as some entry-level employees who remain unassigned for long periods.
• TCS states it will provide severance packages, notice period pay, extended insurance, outplacement support, and counseling for those impacted

Industry and Employee Reaction

• The move has drawn significant concern from employee unions like the Nascent Information Technology Employees Senate (NITES), which has written to India’s labour minister urging intervention and a halt to terminations, claiming the mass sackings may be unlawful.
• The layoffs coincide with industry-wide headwinds—reduced project demand, client-side decision delays, and pressure to improve efficiency amid shrinking margins and increased competition from automation.

Financial and Strategic Impact

• TCS’s Q1 FY26 earnings showed only modest revenue (1.3% YoY) and net income (6% YoY) growth, with employee costs comprising about 57% of overall expenses.
• Cutting 2% of the workforce, particularly at higher pay bands, could result in substantial annual savings, estimated at ₹966 crore to ₹2,500 crore depending on the affected pay scale.
• The company has signaled that future hiring will be targeted at roles and skills aligned with next-generation technologies, emphasizing a shift from scale-focused to margin-focused operations.

Key Points to Watch

• The implementation and fallout from TCS’s bench policy revision.
• The response from impacted employees, industry observers, and government authorities to this unprecedented layoff scale.
• TCS’s continued investments in upskilling and whether retraining can keep pace with rapid changes in technology and client needs.

Important Caveats

• While TCS insists the layoffs are not primarily due to AI or automation, industry experts believe broader tech trends, including AI-driven productivity, continue to reshape traditional service delivery models.
• The legality and ethics of the new bench policy and mass layoffs are being challenged and could lead to regulatory scrutiny.

TCS’s 2% workforce reduction is a major inflection point for the Indian IT sector, driven by significant—and controversial—shifts in skills alignment, internal policy, and operational priorities.