Indian IT Services Industry Sees Decline in TCS Headcount Amidst Drive for Productivity
BENGALURU: The Indian IT services industry has experienced a slowdown in the past year, with TCS’s revenue growing by just 1.7% year-on-year in constant currency during the December quarter. Furthermore, TCS’s headcount has declined by approximately 12,000 employees since reaching its peak six months ago. In an exclusive interview with the Times of India (TOI), TCS CEO Krithivasan sheds light on the factors behind the reduction in headcount, clarifying that it is primarily driven by a focus on productivity rather than the rise of Artificial Intelligence (AI).
When questioned about whether he anticipates further deterioration, Krithivasan expressed confidence in the future, stating, We don’t see any deterioration. I would say that looking forward, we probably are more comfortable and confident about the future. He further elaborated that clients have been reassessing their programs and projects to determine whether they align with their business objectives, leading to potential deferrals or continuations. In an uncertain environment, discretionary spending naturally comes under scrutiny, resulting in a greater emphasis on optimization programs rather than those aimed at driving new business.
Highlighting North America and the banking and financial services sector, Krithivasan acknowledged that no evidence of recovery has been observed so far. He noted that certain large programs have ended without immediate replacements, particularly in the insurance sector which has been under stress due to supply chain constraints and losses from natural catastrophes. However, lending has fared well due to higher interest rates, leading to better spreads for banks. On the other hand, mortgages have been struggling as interest rates remain high, dissuading potential homeowners.
Regarding the decline in TCS’s headcount, Krithivasan dismissed claims that it is a result of the emergence of Generation AI. Instead, he attributed the decrease to a structural approach focused on enhancing productivity. TCS actively evaluates opportunities to improve productivity within existing programs and explores internal talent rather than hiring externally. Krithivasan also mentioned that TCS’s preparedness, training, and ability to deploy its existing workforce have contributed to not needing to hire extensively to replace departing employees. Looking ahead, he expressed the belief that any productivity gains from Generation AI would be offset by increased workload capacity, negating the need for further reductions in headcount.
On the topic of Gen AI deals, Krithivasan discussed TCS’s involvement in numerous proofs-of-concept (PoCs) and development of internal frameworks. While acknowledging that some programs have transitioned from the PoC stage to production, he emphasized that the experimentation stage is ongoing for many organizations. Beyond technology leverages, factors like intellectual property violations and security concerns present obstacles to wider adoption. Krithivasan projected mainstream integration of Gen AI within the next four to six quarters, at which point a new revenue stream would be declared upon crossing the $1 billion threshold.
Lastly, Krithivasan addressed the expanding global capability centers (GCCs) of multinational corporations (MNCs) in India and the trend of insourcing work. He mentioned that GCCs initially see India as an attractive location due to the availability of talent but over time, the cost equation becomes less favorable. While GCCs are keen to outsource certain tasks, they have traditionally faced limitations in doing so.
As the Indian IT services industry navigates its way through challenges, TCS remains committed to boosting productivity and adapting to changing demand dynamics. With a cautious yet optimistic outlook, TCS aims to remain at the forefront of the industry’s ongoing transformation.
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