AI, talent gaps and labour reforms: Forces redefining India's employment landscape

By Balasubramaniam AIndia's employment landscape is undergoing a fundamental shift. The conversation is no longer limited to how many jobs the economy can create. It is increasingly about the nature of these jobs, the skills they demand, the security they offer and how prepared India's workforce is to participate in this changing world of work.Three forces are driving this transition: the rapid adoption of Artificial Intelligence (AI), an expanding gap between the skills employers need and those available in the workforce, and the implementation of new labour codes.

Together, they are changing not just how organisations hire, but also how people work, earn and build their careers.The latest TeamLease Employment Outlook Report for HY2 FY 2026-27 offers some interesting insights into this transition. Based on a survey of 1,239 businesses across 23 industries and 20 cities, the report projects a Net Employment Change of 5.4%, up from 4.7% in HY1 FY 2026-27.

While 60% of employers plan to expand their workforce, compared with 58% in the previous half-year, the nature of this expansion is becoming increasingly selective.For employees, this means that opportunities are growing, but the expectations attached to them are changing.AI is expanding the possibilities of workArtificial Intelligence is opening up new possibilities across India's employment landscape.

From improving operational efficiency and enabling better decision-making to changing how routine tasks are performed, AI is influencing how people contribute to business outcomes. As organisations integrate AI into their workflows, employees are increasingly expected to work alongside these tools, adapt to changing processes and develop capabilities that complement automation.The Employment Outlook Report highlights that 85% of employers report some workforce use of AI or Generative AI tools.

However, only 13% report adoption across more than half their workforce, while 54% restrict usage to a quarter of employees or fewer. The most common adoption level is between 11% and 25% of the workforce, indicating that AI deployment remains largely concentrated within specific functions rather than being embedded across entire organisations.For employees, this points to a transition that is still taking shape.

AI is increasingly being layered onto existing roles rather than fundamentally changing every job. Applications such as routing and scheduling in logistics, assisted diagnostics in service networks and query handling in customer operations illustrate how technology can support everyday responsibilities.The opportunity lies in ensuring that employees are equipped to work effectively with these tools.

As AI adoption deepens, organisations will need to focus not just on technology deployment but also on helping their workforce understand, adopt and use these capabilities responsibly.The real employment challenge is the skills gapOne of the biggest challenges facing India's labour market is the growing disconnect between available talent and the capabilities employers require.The report identifies digital literacy as the most sought-after workforce competency, with 59% of employers identifying it as a priority.

Customer experience management follows at 51%, while communication skills stand at 48%. Teamwork and collaboration and adaptability both feature at 44%.What is particularly interesting is that these are not skills limited to technology professionals. Digital literacy is increasingly becoming a baseline requirement across blue-collar and white-collar roles alike. A warehouse worker may need to navigate digital inventory systems, while a retail employee must increasingly work with digital payment, reporting and customer engagement platforms.This tells us something important about the future of employability.

Being skilled will no longer mean simply being proficient in one particular trade or function. It will mean having the ability to combine domain knowledge with digital fluency, communication and adaptability.However, the challenge extends beyond identifying the skills required. The report finds that 72% of employers planning workforce expansion anticipate significant or moderate difficulty in achieving their hiring numbers.

The challenge is particularly visible in IT, where 39% of employers report hiring difficulty, followed by Sales and Marketing at 38%, Engineering at 32% and blue-collar roles at 31%. Among employers anticipating hiring difficulty, IT roles are the most commonly cited at 39%, followed by Sales and Marketing at 38%, Engineering at 32% and blue-collar roles at 31%.This highlights an important disconnect: while employment opportunities are growing, finding people with the right capabilities remains a significant challenge.The opportunity for India lies in its demographic scale.

However, a large workforce alone does not guarantee a competitive advantage. We need to invest in continuous skilling, accessible vocational education, apprenticeships and industry-aligned training.Equally important is making reskilling accessible to people already in employment. A worker should not have to wait until their role becomes redundant to acquire new skills. Employers, educational institutions and skilling ecosystems must create pathways that allow people to transition into emerging opportunities without disrupting their livelihoods.The emphasis must shift from training people for their first job to preparing them for multiple career transitions over their working lives.Labour reforms must translate into better outcomes for workersThe third force shaping India's employment landscape is labour reform.

The four new Labour Codes, which came into effect on 21 November 2025, consolidate 29 central labour laws and represent an important step towards simplifying India's employment framework, strengthening formalisation and bringing greater consistency to employment practices.However, the impact of these reforms will ultimately be measured by…