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While the current headcount reduction has more to do with slowing demand, the rise of artificial intelligence will impact jobs in the future.
A weak demand environment, weakness in discretionary spending, and prolonged decision-making from clients to sign deals led top Indian IT services companies to report a decline in headcount during the financial year 2023-2024.
India's largest IT company Tata Consultancy Services reported a total employee headcount of 601,546 as of March 2024, a drop of 13,249 employees from the same period last year.
Infosys reported a total employee headcount of 317,240 as of March 2024, down by 25,994 employees from the same period last year, while Wipro saw a headcount decline of 24,516 employees in FY24 on an annual basis.
In total, the three leading IT companies saw a reduction of nearly 64,000 employees in FY24 on an annual basis. 4
For TCS and Infosys, the fall in headcount was the first time in a financial year.
Biswajit Maity, senior principal analyst, Gartner believes a weak demand environment is leading companies to optimise resources to mitigate operational expenses.
"The decline in headcount needs to be contextualised from a demand stabilisation perspective," says Maity. "Over the past 1-2 years, there has been exponential growth in demand for digital adoption, leading to increased hiring."
"Now, due to the weakness in discretionary spending and prolonged decision-making cycles among customers, deal signings are being delayed," explains Maity.
"Providers are seeking to reduce the number of resources to mitigate operational expenses, resulting in a reduction in headcounts," he says.
The muted revenue growth guidance from these companies is also indicative of the demand not picking up anytime soon.
Infosys has projected a revenue growth guidance of 1- to 3 per cent in constant currency for FY25.
Cross-town competitor Wipro has forecast revenue from its IT services business to grow in the range of -1.5 per cent to +0.5 per cent sequentially in constant currency terms for Q1FY25.
TCS does not provide guidance.
Analysts believe optimising headcount could be one of the levers used to push margins up.
Infosys' operating margins contracted 40 basis points to 20.1 per cent in the March quarter from 20.5 per cent in the preceding three months.
Wipro's operating margin expanded 40 basis points sequentially to 16.4 per cent in Q4 but is still away from its aspirational margin band of 17 to 18 per cent.
Last year, Infosys launched an official project called 'Project Maximus' for two years aimed at improving margins.
'Operating margin expansion in the medium-term and improving cash generation continue to remain our priorities underpinned by the early success of Project Maximus,' Infosys CFO Jayesh Sanghrajka said during the earnings.
While the current headcount reduction has more to do with slowing demand, the rise of artificial intelligence (AI) will impact jobs in the future.
"AI has been there for a long time, and it has been driving productivity and operational efficiency for several years now. It has also led to a shift from labour to technology arbitrage, which has an impact on headcount," says Maity.
"The emergence of GenAI, while promising, is still in its infancy, with most use cases in the proof-of-concept stage and only a handful in production. We can see the impact in the coming future though," Maity adds.
