Short answer: No.

If you’re reading this, we’re sure you’ve already heard of ChatGPT and its many wonders. It can write poems. Tell jokes. Answer questions about the meaning of life. It can also write computer programs. This last capability has prompted many to wonder if this represents an existential threat from the Indian IT sevices industry. We asked ChatGPT. Here’s what it had to say about that:

…I do not possess the ability to independently create and distribute software programs on my own. My primary function is to assist and facilitate human programmers and developers in their tasks by providing them with relevant information, suggestions, and solutions to their problems.

Therefore, it is unlikely that my abilities to generate software programs would have a negative impact on the Indian IT industry… Instead, my capabilities could prove to be a valuable resource for software developers in India and around the world, as they could use my insights and suggestions to improve the efficiency and effectiveness of their work.

We agree with that assessment. A system that helps with writing code is hardly a replacement for actual software development capabilities. For one, the design of production ready software involves far more than writing code. Knowing what to build in the first place is half the battle. The requirements gathering process itself can be a colossal struggle for enterprise software development projects. It is a specialized skill usually unavailable within most companies. Again, writing code is only one, although an important part, of enterprise software development. However, it is not really possible to outsource everything other than the code writing itself. Since ChatGPT doesn’t take you all the way there, unfortunately, it doesn’t get you very far at all.

On the other hand, ChatGPT is available to IT companies as well. For them, it could reduce development costs meaningfully. The competitiveness of the industry dictates that this cost advantage will eventually have to be passed on to clients. So while there might be margin benefits to IT companies, those will be eroded away. However, a drop in costs has a positive impact for overall demand for the service itself. When the cost of developing and hosting a website became low enough, the demand exploded, and practically every company on the planet ended up with one. The demand for enterprise software could similarly see an uptick, although not in the same way as the demand for websites.

There is an even bigger positive impact. We believe the launch of ChatGPT is a tipping point in the race for AI adoption. For years, companies have wondered how they can benefit from the rapidly rising power of AI. However, since almost all use-cases involved building custom solutions, it remained out of reach for most. The general-purpose power of ChatGPT has made it feasible for big as well as small companies to start adoption. The value of AI is suddenly so apparent, and the possibility of using it so within reach, that adoption is going up at an unbelievable pace. Yet, implementation in an enterprise setup still needs specialized capabilities. Hence the role for IT services companies. Just as cloud adoption represented an enormous new opportunity, only 30% of which is believed to have been tapped yet, this new trigger represents another enormous new opportunity – likely to drive growth well into the next decade.

So on the one hand, ChatGPT drives down the cost of writing conventional software, which will naturally drive up demand for software. On the other hand, AI adoption itself represents a huge new opportunity which now seems within reach for many more businesses around the world. Far from being a death knell, ChatGPT seems to be sounding a trumpet of opportunity for Indian IT.

This article is written by Parijat Garg who as of March 2023, is an Executive Vice President at IIFL Asset Management. 

Disclaimer:

Disclaimer: Securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the scheme/fund will be achieved. The views & opinions expressed herein are those of the author(s) and do not necessarily reflect the views or opinions of IIFLAMC / 360 ONE WAM Limited (Formerly known as IIFL Wealth Management Limited) and/or its subsidiaries.