TLDR: The recent launch of OpenAI’s GPT-5, with its significantly enhanced coding and reasoning abilities, is projected to pose a 2-3% revenue deflation risk for the Indian IT services industry over the next few years. This disruption stems from increased productivity, reduced reliance on traditional coding, and client demands for lower pricing, compelling firms to pivot towards outcome-based models and higher-value services.
OpenAI’s latest flagship model, GPT-5, has sent ripples through the global technology landscape, particularly impacting India’s robust $283 billion IT services sector. Released recently, GPT-5, touted as ChatGPT’s most potent coding version yet, is anticipated to introduce a period of revenue deflation for Indian IT firms, with projections indicating a 2-3% net impact on revenue growth over the next two to three years.
According to a report by Kotak Institutional Equities, the advanced capabilities of GPT-5, including its improved coding prowess and reduced hallucination rates, are expected to accelerate the adoption of generative artificial intelligence (GenAI) in software development. This acceleration, while boosting productivity by an estimated 20-40%, simultaneously exposes IT services firms to the risk of clients demanding lower pricing for services that can now be automated or streamlined by AI. The report also suggests a similar impact on the customer service and business process outsourcing (BPO) sectors.
The Indian IT services industry, traditionally reliant on a large workforce of software coders, is already navigating the disruptive forces of AI. The shift from a people-based billing model to outcome-based pricing, which has been underway, is likely to intensify. Anup Pai, a Fintech expert and CEO of eSamudaay, emphasizes that AI necessitates a complete re-evaluation of existing business matrices, urging companies to pass on productivity benefits to clients by redrawing dashboards and reskilling resources.
While GPT-5 presents immediate challenges, industry experts also foresee new opportunities emerging from GenAI adoption. Kotak’s report notes that these new avenues, such as cloud and data foundation services, legacy modernization, and AI for business use cases, will eventually offset the revenue reduction in existing volumes. However, a lag is expected between the initial headwinds and the full realization of these new opportunities.
Furthermore, OpenAI’s aggressive pricing strategy for GPT-5’s API, at $1.25 per 1 million input tokens and $10 per 1 million output tokens, is set to intensify competition. This pricing mirrors Google’s Gemini 2.5 Pro and significantly undercuts rivals like Anthropic’s Claude Opus 4.1, which starts at $15 per 1 million input tokens. This competitive pricing could further pressure IT firms to optimize their cost structures.
Also Read:
- OpenAI’s GPT-5 Model Now Fully Deployed Across All ChatGPT User Tiers, Marking Significant AI Advancement
- OpenAI Explores Tiered Access to GPT-5 Pro for Plus Subscribers, Signals Broader Monetization Strategy
Despite the potential for short-term disruption, OpenAI CEO Sam Altman has expressed optimism about India’s role in the AI ecosystem. He noted that India is currently OpenAI’s second-largest market globally, after the US, and could soon become its largest, highlighting the remarkable pace at which Indian citizens and businesses are adopting AI.
