‘TCS headcount down on productivity push, not AI’


BENGALURU: Indian IT services industry has slowed over the past year. TCS’s revenue grew just 1.7% year-on-year in constant currency in the December quarter. Its headcount has declined by about 12,000 since its peak six months ago. In an interview with TOI, TCS CEO Krithivasan talks about the global demand environment and why employee headcount is dropping. Excerpts:
You said things haven’t changed much on the ground. Do you expect further deterioration?
We don’t see any deterioration. I would say that looking forward, we probably are more comfortable and confident about the future. In Q3, clients continued to re-evaluate the programmes and projects that they’re doing to see whether they make business sense and take a decision on whether they should defer them or continue. When there is overall uncertainty, discretionary spending will come under a lot of questions. So, in the overall TCV (total contract value), you will find that it will have more weight with (cost) optimisation programmes than with discretionary programmes (to drive new business).

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North America and banking & financial services have shown no evidence of green shoots…
Some large programmes are ending and not being replaced with alternative ones immediately. Insurance has been under stress for some time now, particularly on the auto insurance side. It had an impact through supply chain constraints, and also through losses from natural catastrophes. Because of natural calamities, many of the insurance companies, particularly in the general insurance area, have not been doing well. The area that’s been working well is lending – because of the high interest rates, the banks have better spread (between deposit and lending rates). But on the other hand, mortgages are a troubled portfolio because interest rates are high, nobody’s taking new mortgages.
Your number of employees has dropped by about 12,000 from the peak of the year. How much is this a structural phenomenon, because of Gen AI?
I wouldn’t attribute this to Gen AI. There is a structural thing involved – we consciously look at productivity. We look at whether there’s opportunity to improve productivity in a given programme. And if we find that there is demand elsewhere, we look to see if we can avoid hiring externally and use the people within the organisation. In an environment like this, there’s a greater focus on productivity. The biggest reason that you don’t see a spike in numbers is, we hired ahead of time, we trained them, and so we have a bench now to deploy, and we don’t have to go to market to hire new folks to replace people leaving. Going forward, our belief is whatever productivity benefit you get from Gen AI will be offset by greater volume of work that you will be able to handle and not have to reduce the employee headcount.
Accenture is calling out Gen AI deals worth $500 million every quarter. Are Indian IT firms yet to transition from proofs-of-concepts to projects?
We have been doing many PoCs, and we are also developing our own internal frameworks because we have a definitive belief on how these programmes have to be delivered. We announced that about four programmes have moved from PoC stage to production. And all our discussions with the customers also tell us that many of them are still in the experimentation stage. It’s just not about leveraging technology, there are aspects around IP violations, there are aspects around security that people are worried about. And most organisations are still figuring out how to give access to all the employees on these technologies. So there are multiple issues to be sorted out before Gen AI can become mainstream. It will take about four to six quarters for it to become mainstream. We normally call out a new revenue stream when it crosses $1 billion.
Global capability centres of MNCs in India look to be expanding, newer ones are coming in. Many large firms have said they are insourcing work. How is that impacting Indian IT?
GCCs want to leverage India because of the talent availability, but there is a lot of work that they traditionally have not been able to outsource. GCCs are attractive when they start, but then, over a period of time the cost equation doesn’t add up.





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