After navigating a prolonged "funding winter" and a period of significant layoffs, India's startup ecosystem is showing encouraging signs of a cautious recovery in hiring. Data from staffing firms indicates that approximately 80,000 new tech jobs are expected to be added in the fiscal year 2025-26 (FY26), signaling a return to pre-downturn hiring levels for the sector.

According to Xpheno, a specialist staffing firm, the total tech workforce within funded startups is projected to grow from 5.9 lakh (590,000) at the close of FY25 to 6.7 lakh (670,000) by the end of FY26. This translates to a net addition of 80,000 jobs, an increase from the 60,000 net additions observed in FY25. Reports from other staffing solution providers like TeamLease Services echo this sentiment of cautious optimism across the startup and broader tech sector.

The recovery, while welcome, is characterized by a "cautious" approach. Startups are focusing on building leaner teams with sharper, outcome-oriented skill sets. The emphasis has shifted from aggressive, headcount-driven expansion to creating sustainable, value-driven business models. This is particularly evident in the preference for experienced professionals over freshers, with a noticeable decline in entry-level hiring by startups compared to previous years. Companies are prioritizing skill-based hiring, seeking candidates with expertise in advanced technologies like AI, data analytics, cybersecurity, and cloud computing.

The anticipated growth in FY26 is expected to be driven by sectors such as quick commerce, e-retail, online marketplaces, fintech (including payments, remittances, lending, and credit), and Food & Beverage retail. These segments are witnessing increased demand and innovation, prompting a need for specialized tech talent.

Beyond major metropolitan hubs, Tier-2 and Tier-3 cities are emerging as significant drivers of this hiring momentum. These smaller cities, which now host over 51% of DPIIT-recognized startups, offer advantages like lower operational costs, a digitally skilled workforce, and lower attrition rates, making them attractive hubs for expansion. This geographical diversification is contributing significantly to job creation outside traditional tech centers.

However, the landscape is not without its challenges. The broader IT sector, especially traditional IT services, continues to face headwinds. Global macroeconomic uncertainties, including potential US tariff wars and recession fears, are impacting discretionary tech spending and delaying a full-fledged recovery in the IT services segment. While some reports suggest a decline in overall tech hiring due to these factors, the startup ecosystem appears to be carving out its own growth path.

The impact of Artificial Intelligence (AI) is also a significant factor shaping hiring trends. While AI is poised to create new roles, it is also leading to the automation of routine tasks, putting pressure on entry-level jobs and potentially moderating salary expectations for less experienced professionals. Companies are focusing on hiring talent that can leverage AI to drive efficiency and innovation, rather than simply expanding headcount.

Despite these complexities, the overall sentiment among Indian startups and staffing firms is one of measured growth. The focus on sustainable models, skill-centric hiring, and tapping into diverse talent pools in emerging cities are key strategies that are expected to propel job creation in the tech startup sector through FY26.