Indian IT Firms Shift Gears as AI Drives Minimal Hiring Growth

India’s major IT companies have undergone a significant transformation in their workforce models, adding only 17 net employees in the first nine months of the fiscal year 2026 (FY26). This contrasts sharply with the 17,764 employees added during the same period last year. The shift is attributed to the rise of automation, a reduction in routine work, and a critical shortage of talent equipped for artificial intelligence (AI) roles, despite an increasing demand from clients for generative AI solutions.

Chirag Mehta, vice president and principal analyst at Constellation Research, explained the current trend: “That is what AI-era productivity looks like in practice: more output per employee, fewer benches, and tighter utilization.” The struggle to find adequately skilled personnel is evident, as noted by Biswajeet Mahapatra, principal analyst at Forrester. He remarked that only one qualified engineer exists for every ten generative AI jobs in India, with just 15-20 percent of the workforce possessing AI-ready skills. Rapid technological advancements, high salary inflation, and limited training resources contribute to this talent gap.

Headcount Declines Amidst AI Demand

The latest earnings reports for the October to December quarter have shown a consistent trend in decreasing employee numbers across India’s leading IT services firms. TCS reported a global workforce of 582,163 employees at the end of Q3 FY26, a drop of over 11,000 from the previous quarter’s figures. Similarly, Tech Mahindra’s headcount fell to 149,616, down from 152,714, while HCLTech experienced a slight decline to 226,379 employees. In contrast, Infosys reported a modest increase in its workforce, rising to 337,034 from 331,991, having added nearly 5,000 software professionals. However, this growth still lags behind previous quarters, indicating the challenges faced by the company in attracting the necessary talent.

The traditional model of utilizing large teams for cost efficiency and predictable delivery is being reevaluated. With the integration of AI, companies are restructuring their teams to meet demands for rapid delivery and measurable outcomes. Biswajit Maity, senior principal analyst at Gartner, elaborated on this evolution, stating, “Leveraging AI and machine learning, companies are automating high-volume, routine tasks that earlier required large teams.” This has resulted in smaller, more specialized teams that focus on outcomes rather than simply labor hours.

Reskilling and Subcontracting on the Rise

As the demand for AI skills continues to outpace supply, IT services companies are pivoting away from large-scale hiring toward reskilling existing employees and subcontracting work. TCS has acknowledged releasing approximately 1,800 employees in Q3 due to difficulties in redeployment. The company maintains a strategy of hiring from campuses and lateral recruitment for roles that align with future requirements.

To address the talent shortage, TCS has expanded its workforce with advanced AI skills to more than 217,000 employees, a three-fold increase from the previous year. HCLTech is also making strides by implementing AI capabilities across its business lines, training over 38,000 employees on generative AI tools and over 600 on responsible AI practices, as noted by CEO C. Vijayakumar.

In this shifting landscape, IT services firms are increasingly relying on subcontracting and gig economy solutions to manage variable demands. This approach allows for flexibility in workforce management and may obscure growth in visible employee counts, even when the volume of service delivery rises.

The current state of India’s IT sector illustrates a significant transition driven by AI advancements and changing client needs. As companies adapt to these realities, the focus on reskilling and strategic workforce management will likely continue, shaping the future of the industry.