Costly middle layer faces the axe amid India’s IT sector layoff drill

India’s IT services industry — long viewed as a reliable engine of job creation and middle-class mobility — has suddenly entered a phase of stark recalibration. Over the past few months a wave of layoffs at major firms has made one thing painfully clear: the plush, expensive “middle layer” of mid-career managers and senior specialists is the first to feel the heat. Companies that expanded aggressively during the pandemic and early-post-pandemic boom are now trimming that costly middle bracket to reshape labour pyramids for an AI-centred future and to restore margin discipline. The phenomenon is not isolated: it reflects tighter client budgets, investor pressure for efficiency, and the disruptive effects of automation and generative AI on repeatable work.

This article pulls together the numbers, the motivations, the human and macroeconomic consequences, and what the near-term future looks like for India’s IT workforce. It draws on reporting across industry press and business media, and places the current layoff cycle in the context of a structural shift in global outsourcing.

What’s happening — the facts in brief

The most visible trigger was Tata Consultancy Services’ (TCS) decision to cut roughly 12,000 roles — a reduction the company framed as about 2% of its global workforce and primarily targeted at mid- and senior-level employees. Other large vendors — Wipro, HCLTech, Tech Mahindra and Infosys among them — have also implemented targeted reductions, hiring freezes at senior levels, or sharper performance and redeployment screens. Across the first half of 2025, media reporting and industry trackers suggest the combined layoffs at the major Indian IT firms totalled in the tens of thousands.

Several data points stand out: specialist recruiters report many senior professionals (those with 15+ years of experience) exiting firms over the past year; investor commentary points to rising per-employee costs at some firms after rapid hiring since 2020; and analyst discussions emphasise that the industry’s traditional pyramid — many juniors at the bottom, a slim top of leaders — has fanned out into a costlier shape, with a very large middle layer that is now harder to sustain.

Why the middle layer — and why now?

There are four overlapping reasons for the current focus on mid-career roles.

1. Cost structure and the bloated middle. Many big Indian IT firms increased headcounts substantially during and after the pandemic to secure delivery bandwidth and meet a spike in digital transformation deals. For several firms, headcount grew faster than revenues, raising per-employee costs. Firms are now pruning the middle layer where headcount (and therefore fixed salary costs) is concentrated. Management hopes cuts will materially improve margins without harming the ability to land new business.
2. AI and automation of routine technical tasks. Generative AI and automation have matured rapidly in use-cases like basic coding assistance, automated testing, script generation, and low-level infrastructure management. Roles that once required experienced human effort for repetitive or templated tasks can now be partly or mostly automated, reducing demand for some mid-level technical specialists. Even when AI is not directly the cause, it changes skill mixes and client expectations.
3. Investor pressure and a tougher macro backdrop. Global macro uncertainty, cautious CIO spending in key markets (notably North America and Europe), and shareholder expectations for cost efficiency have pushed management teams to deliver near-term margin improvements. Layoffs are one — painful — lever to demonstrate fiscal discipline when organic revenue growth is modest.
4. Skills mismatch and slower reskilling. Firms increasingly say that a portion of the workforce does not have the skills needed for new, higher-value roles (cloud architects, AI engineers, data scientists, product engineers). While companies offer reskilling programmes, those programs take time to scale; meanwhile, managers argue that some mid-career professionals may be less mobile or slower to retrain, making redeployment difficult.

Who exactly is affected?

“Middle layer” is a shorthand covering a mix of roles: mid-career delivery managers, technical leads, test engineers, infra engineers, project managers, and senior individual contributors — often people in their late 30s to 50s with 8–20 years of experience. Reports indicate that firms are concentrating cuts at grades often labeled C5 and above (internal grade names vary across firms). This group tends to command higher salaries than junior hires and sits between client-facing senior leaders and large numbers of entry level or early-career associates.

The impact is uneven across business lines. Large accounts and strategic client relationships are insulated to a degree; more commoditised delivery (infrastructure, application maintenance, manual testing) is being rationalised faster. Geography matters too — cuts are observed across major IT hubs (Bengaluru, Hyderabad, Chennai, Pune, Gurugram), but the ripple effects also hit smaller towns that depend on IT incomes.

The human cost: careers and communities

For affected individuals, the consequences are immediate and often severe. Mid-career professionals may face a tougher job market: there are fewer mid-level openings relative to the volume of people who had expected long tenures in the same firm. Age and experience can become paradoxical liabilities — employers seeking cloud, AI, or product engineering skills may prefer specialists irrespective of years of experience.

The broader socio-economic impact can be substantial. India’s IT sector directly employs over 5 million people and indirectly supports many more in real estate, services, retail and education. Widespread layoffs can dent discretionary spending, slow hiring in related sectors, and create localised shocks in IT hubs. Some analysts warn that a prolonged adjustment could cool consumption and have knock-on effects on housing and urban services.

Mental health, financial stress, and family pressures are immediate human costs. For many affected employees, severance packages can help but do not always cover the time needed to reskill or find comparable roles. In many cases, consultants and recruitment firms are seeing a surge in applications from senior candidates who historically relied on internal progression and long tenure.

Corporate responses: redeployment, reskilling, and PR

Publicly, firms stress reskilling and redeployment. They point to internal programmes that aim to move people into cloud, AI, automation, cybersecurity and industry specialisations. TCS, for instance, has highlighted reskilling drives even as it executes cuts. But redeployment is neither instant nor universal; not all employees can be transitioned quickly, and not every role maps to a new portfolio. Companies also cite that some exits result from “deployment infeasibility” — a business euphemism for roles that are no longer profitable or demanded by clients.

Some firms are pursuing a dual strategy: protect the junior talent pipeline (through fresher hiring and investments in early-career programmes) while pruning higher cost mid-career layers. This is reflected in public decisions to continue campus hiring and raise pay for selected junior bands while halting senior hiring and freezing some wage bands. The stated logic is to reshape the cost base so that firms remain competitive on price for commoditised work while building scarce specialist talent for value-added services.

Clients and delivery risk: why CIOs are watching nervously

Corporate clients — especially large global buyers outsourcing mission-critical systems — are watching closely. Rapid layoffs can create knowledge gaps, affect continuity, and heighten risks in long-running engagements. CIOs worry about service stability when many seasoned delivery managers are let go. Some clients therefore prefer gradual, negotiated transitions or insist on knowledge-transfer guarantees. This dynamic adds complexity: vendors must cut costs while reassuring clients that delivery and SLAs won’t suffer.

Macro implications: labour markets, wages, and migration

If layoffs become sustained and widespread, several macro trends could follow:

• Wage adjustments for mid-career roles. Large supply of mid-career talent could depress market salaries for certain bands, at least temporarily, while increasing compensation for scarce AI/cloud specialists.
• Geographic shifts. Secondary and tertiary cities that grew around IT employment may see slower growth and reduced demand for services. Conversely, firms might accelerate remote work or nearshore/offshoring strategies to optimise costs.
• Reskilling demand and education market growth. The private reskilling market — bootcamps, specialised courses in AI, cloud, data engineering — will likely expand rapidly. Governments and industry bodies may be pressured to fund or subsidise large-scale upskilling initiatives.
• Policy attention. Large, visible layoffs attract political attention. Policymakers could consider incentives for retraining, social safety nets, or even tax breaks for firms that invest in internal reskilling. The shape and speed of any regulatory response will be critical for the industry’s public image and social licence to operate.

What workers can do — practical steps for mid-career professionals

For mid-career IT professionals facing uncertainty, some pragmatic steps can increase employability and resilience:

1. Assess and prioritise skills with market value. Cloud certifications (AWS/Azure/GCP), data engineering, MLOps, prompt engineering and cybersecurity skills are in demand. Basic fluency with large language models and AI toolchains is increasingly table stakes.
2. Build demonstrable outputs. Create small projects, GitHub portfolios, or case studies that showcase applied skills — not just theoretical knowledge.
3. Consider role flexibility. Lateral moves into adjacent areas (product operations, client success, automation engineering) can bridge to new careers.
4. Network actively and use recruiters. Mid-career professionals often undervalue external job search channels. Industry recruiters, alumni networks, and professional communities accelerate job discovery.
5. Plan finances and mental health. Prepare a short-term cash buffer, and seek counselling or peer support to manage stress — job searches at mid-career can be emotionally intense.

Are layoffs primarily an “AI story”?

Media coverage and corporate statements sometimes frame the cuts as a direct consequence of AI. While AI is certainly an accelerant, the picture is more nuanced. The immediate drivers include over-hiring during earlier growth phases, elevated per-employee costs, slow revenue momentum in key markets, and investor demand for efficiency. AI magnifies the situation by changing the types of tasks needed and enabling automation of some previously labour-intensive processes. In short: AI is an important catalyst but not the sole cause.

How companies can shrink responsibly

Not all layoffs are equivalent. Responsible approaches share common features:

• Transparent communication: Honest, early communication about business realities and the rationale for restructuring helps preserve trust.
• Generous, structured severance and transition support: Beyond cash, practical support like outplacement services, reskilling vouchers, and recruitment partnerships reduce the friction for displaced workers.
• Phased redeployment and internal marketplaces: Giving employees time and structured pathways to reskill and apply for new roles internally preserves talent and institutional knowledge.
• Client assurances: Firms should proactively engage clients to outline how delivery continuity will be ensured during transitions.

Firms that combine surgical cost cutting with humane transition programs are likelier to preserve morale and brand reputation.

The investor lens: short-term pain, long-term repositioning?

For equity markets, layoffs often read as an immediate margin improvement lever. Investors reward companies that show discipline on costs when revenues are soft. But the long-term metric is strategic positioning: are firms using cost savings to invest in higher-margin digital, cloud and AI capabilities? If layoffs fund genuine capability upgrades, the move could be justified. If they are merely an accounting exercise, the risk is longer-term erosion of client relationships and delivery capability. Analysts will therefore watch whether savings feed into upskilling, IP development and productisation — or vanish into short-term profit boosts.

Global comparisons — is India unique?

Other global vendors have also trimmed headcount when client markets slowed. What makes India notable is scale: the sector employs millions and has been a reliable ladder into the middle class. The structural change here is therefore socially significant. In addition, India’s leading vendors are massive enough that their moves influence the whole ecosystem — supplier companies, local recruiters, training institutes and urban services. The stakes are higher than a single firm’s restructuring.

A cautious outlook

Over the next 12–24 months, expect continued divergence within the sector. Firms that accelerate investments in AI, cloud and industry IP and that execute disciplined redeployment may emerge leaner and more profitable. Others that treat layoffs as a stopgap without parallel investments risk losing competitive ground.

For the workforce, the adjustment will be messy. There will be career dislocations and re-skilling demands. Yet history also shows that technological shifts create new roles even as they erode old ones. The crucial policy and corporate question is whether the transition is managed in a way that preserves dignity, offers viable retraining pathways, and limits social fallout.