When nearly 850 employees at CorroHealth's Kochi and Kozhikode centres lost their jobs, the layoffs sparked a debate that extended far beyond one company. Employees, labour groups and industry observers say the episode reflects a broader transformation in the technology sector, where artificial intelligence is steadily reducing the need for routine, process-driven work.

They also allege that the workforce is being reduced without formal announcements. Instead, companies are encouraging employees, particularly senior staff, to resign after projects conclude, enabling employers to cut headcount while avoiding severance payments and other statutory benefits.

Long considered relatively insulated from the wave of Silicon Valley-style job cuts, Kerala's IT sector may now be witnessing the early signs of an AI-driven reshaping of its workforce.

According to Susanth Kurunthil, CEO of Infoparks Kerala, though there is no evidence yet of AI-specific layoffs in the state's IT parks, fresh hiring has slowed considerably this year.

"We cannot conclusively attribute any reduction in employment to AI-driven restructuring. However, there has definitely been a slowdown in fresh recruitment in 2026 compared with 2025," Kurunthil said.

CorroHealth layoffs raise alarm
Most of the employees affected by the CorroHealth layoffs worked in medical coding, an area increasingly susceptible to automation through generative AI. While the company attributed the job cuts to operational changes and business restructuring, industry observers believe AI has been a significant contributing factor.

Vishnu TP, a member of the Unemployed Employees Action Council and a former operations manager at CorroHealth, said advancements in AI have been a major factor that led to layoffs. "The company is shifting from conventional medical coding to Health Information Management (HIM) operations in Noida. A process that once required around 100 coders now needs only about 20 employees to validate AI-generated outputs," he said.

According to Vishnu, the reduction in medical coding jobs creates a ripple effect across organisations.

"When AI reduces the need for coding professionals, demand also falls for supporting roles such as IT tool developers, system administrators, network personnel, security staff, housekeeping workers and janitors. Unlike some European countries where companies are required to share AI-generated profits with employees whose work helped train AI systems, India has no such legal framework to protect workers," he said.

AI-driven restructuring across the industry
Concerns over AI-driven workforce changes extend well beyond a single company. Across India, automation is altering workforce requirements in software development, technical support, maintenance, financial technology and back-office operations.

According to Layoffs.fyi, which tracks global technology-sector layoffs, companies citing AI adoption or AI-led restructuring have announced significantly more job cuts this year than in 2025, reflecting the growing impact of automation on employment across the sector.

Several major technology companies have also announced workforce reductions across the globe amid AI-led restructuring, including Amazon (around 16,000 jobs), Dell (11,000) and Meta (8,000). Oracle, which reportedly reduced around 21,000 jobs over the past year, has also pointed to increasing AI adoption as part of its broader restructuring strategy.

Tata Consultancy Services (TCS) reported a net workforce decline of nearly 20,000 employees during the third quarter of 2025, followed by another 11,000 exits in the subsequent quarter. However, a former member of the company's HR team told Onmanorama that these reductions were not directly linked to AI adoption. Instead, they were driven primarily by performance management and upskilling requirements, with AI serving mainly to improve employee productivity.

'Replacement' rather than layoffs
Vineeth Chandran, secretary of Prathidhwani, an IT employees' welfare organisation, believes many companies are avoiding formal layoffs by resorting to another method.

"Instead of issuing termination letters, many companies call employees over the phone or ask them to meet in person after a project ends and pressure them to resign. In many cases, there is no official email communicating the decision," he said.

"By obtaining resignations instead of terminating employees, companies avoid paying severance compensation and other statutory benefits. Senior employees with higher salaries are the worst affected."

According to Vineeth, companies are increasingly replacing experienced employees with junior recruits who, aided by AI tools, can deliver comparable productivity while drawing significantly lower salaries.

"The nature of software development has changed dramatically. AI-assisted coding has accelerated development to such an extent that projects which previously took months can now be completed within days," he said.

"As a result, companies require fewer employees to deliver the same output. Even when organisations claim that overall headcount has not reduced, what is actually happening is workforce replacement. Senior, higher-paid employees are being pushed out and replaced with lower-cost junior employees."

The trend is visible even among large IT and consulting firms that traditionally recruited thousands of employees every year. However, not all companies have adopted the same approach.

Industry representatives say another major factor driving workforce rationalisation is the growing investment required for AI technologies. Companies are allocating larger budgets for AI infrastructure, software and automation tools. To finance these investments, organisations are reducing expenditure elsewhere, with labour costs becoming one of the primary targets.

Labour code debate
The layoffs have also reignited debate over India's labour laws. Under the Industrial Disputes Act, 1947, companies employing 100 or more workers were required to obtain prior government approval before carrying out mass retrenchments. The Industrial Relations Code, 2020, raises this threshold to 300 employees, allowing smaller establishments to retrench workers or shut operations without prior approval.

Labour groups argue that the change has significant implications for Kerala's IT sector, where most companies employ fewer than 300 workers. They contend that it makes workforce reductions easier while encouraging greater reliance on contract employees, weakening long-term job security.

"The Union Labour Minister convened a meeting of all state labour ministers on June 8 and urged states to implement the new Labour Code. Kerala will soon host a Labour Conclave involving all stakeholders to ensure the code is implemented seamlessly while safeguarding employees' interests," Labour Minister Bindu Krishna told Onmanorama.

The Minister added that the advent of AI is transforming employment across the world, and Kerala is no exception. "Certain provisions of the new Labour Code do not adequately protect employees from such layoffs. We will work with the IT Department to gather data on AI-related job losses," she said.