New Delhi, Aug. 18 -- Last month, Tata Consultancy Services (TCS), India's largest private sector employer, made a seismic announcement: 12,000 employees would be laid off, mostly from middle and senior management. This was an unmistakable signal of a strategic shift by a company that had prided itself on employee stability and incremental growth for decades. More than a simple HR pruning, the move revealed that the traditional edifice of Indian outsourcing-a pyramid built on human capital arbitrage-was beginning to show its age.

Officially, TCS cited a growing skills mismatch as the reason for its layoffs, sayingthat such changes were necessary to prepare for the future. CEO K. Krithivasan downplayed automation as the main reason for th...