IT Layoffs Threaten India’s Consumption-Led Recovery
India’s economy, which has been largely driven by consumption-led growth, is facing a significant threat due to the recent spate of layoffs in the IT sector. The biggest cut in history by Tata Consultancy Services (TCS), which plans to lay off 12,200 employees, or 2% of its workforce, is a stark reminder of the challenges that the sector is facing.
The news comes at a time when consumer spending, which accounts for a whopping 59% of India’s GDP, is slowing down. Household debt has hit a record 40% of GDP in 2024, while retail loan growth has fallen to 15.3% in June 2025 from 22.9% a year earlier. This worsening demand stress is likely to have a ripple effect on the economy as a whole.
The IT sector, which has been a major driver of India’s economic growth, has been facing a slump in hiring. According to recent reports, IT hiring has dropped by a staggering 35% year-on-year. This is a significant decline, especially considering the sector’s growth trajectory in recent years.
The layoffs at TCS are not isolated incidents. Other IT companies, such as Infosys, Wipro, and HCL Technologies, have also announced plans to reduce their workforce. The recent announcements have sent shockwaves through the industry, causing anxiety among employees and investors alike.
The reasons for the layoffs are varied, but the primary cause is the decline in demand for IT services. Many companies, both domestic and international, are re-evaluating their spending habits and have become more cautious in their hiring decisions. The COVID-19 pandemic has accelerated the shift towards digital transformation, and as a result, companies are looking for more efficient and cost-effective ways to deliver their IT services.
The layoffs will not only have a direct impact on the employees who lose their jobs but also on the broader economy. The IT sector is a significant contributor to India’s GDP, and any decline in hiring and investment will have a ripple effect on other sectors, such as real estate, infrastructure, and construction.
The impact of the layoffs will also be felt on the broader economy. Consumer spending, which accounts for a large chunk of India’s GDP, is already slowing down. The retail loan growth rate has fallen to 15.3% in June 2025 from 22.9% a year earlier, indicating a decline in demand. Household debt has hit a record 40% of GDP in 2024, which is a cause for concern.
The slowdown in consumer spending is attributed to several factors, including a decline in disposable income, high interest rates, and a lack of job opportunities. The layoffs in the IT sector will only exacerbate the situation, as consumers will become even more cautious in their spending habits.
The government has been trying to boost economic growth through a combination of fiscal and monetary policies. The recent budget announcement included measures such as a reduction in corporate tax rates, an increase in the minimum alternate tax, and an increase in the limit for tax-free income. The Reserve Bank of India has also been cutting interest rates to stimulate growth.
However, despite these efforts, the economy is still facing significant challenges. The GDP growth rate has slowed down to 5.4% in the first quarter of 2025, down from 7.3% in the same quarter a year earlier. The manufacturing sector, which accounts for a significant chunk of India’s GDP, has been particularly hard hit, with a decline in production and a rise in inventory levels.
In conclusion, the recent layoffs in the IT sector are a significant threat to India’s consumption-led recovery. The decline in hiring, the increase in household debt, and the slowdown in consumer spending are all interlinked and will have a ripple effect on the broader economy. The government and the Reserve Bank of India need to take decisive action to stimulate growth and address the challenges facing the economy.
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