OpenAI may have just fired a ‘warning shot’ at Indian IT companies’ revenue model, says analyst note; but there’s also …

OpenAI’s GPT-5 launch poses a threat to India’s IT sector, potentially causing a 2-3% revenue decline due to enhanced AI coding capabilities. While AI improves productivity and shifts billing models, firms face challenges adapting to outcome-based pricing. Experts predict short-term pain but long-term gains as new AI opportunities emerge, requiring IT firms to overhaul delivery models.

ChatGPT maker OpenAI’s recent launch of GPT-5, the latest and most advanced version of ChatGPT, could pose a significant challenge to India’s $283 billion IT services industry. According to a report in Economic Times, quoting Kotak Institutional Equities report, the adoption of generative AI, bolstered by GPT-5’s enhanced coding capabilities, may lead to a 2-3% revenue decline for Indian IT companies over the next 2-3 years, impacting both software services and customer service outsourcing sectors. The Indian IT industry, heavily reliant on large-scale software coder hiring, is already grappling with AI-driven disruptions.

The report notes that AI has improved productivity by 20-40%, reducing the need for engineers and shifting away from traditional people-based billing models. This, combined with a tariffs-induced economic slowdown, has led to flat or negative growth for IT firms over the past two years. Phil Fersht, CEO of HFS Research, said, “If your business still depends on armies of coders grinding through routine builds, your margins are about to get hammered.” He emphasized that clients will demand lower rates due to AI-driven productivity gains, forcing IT firms to overhaul delivery models within 12–18 months to focus on AI-augmented, higher-value services.

OpenAI described GPT-5 as “our best AI system yet,” with significant improvements in coding, math, writing, and more, according to the report. The model offers better reasoning, accuracy, and instruction-following, with a 65% reduction in hallucination rates, as per a Gartner report quoted in the article. These advancements could lower costs and risks for clients modernizing legacy systems, providing some advantages to IT service providers. However, major firms like Tata Consultancy Services, Infosys, HCLTech, and Wipro are facing revenue challenges due to a shift from employee-based to outcome-based pricing models.