Generative AI is expected to generate economic value worth $2.6 - 4.4 trillion annually, of which around 75 per cent is expected to be concentrated in functions like software engineering, customer operations, product and R&D, and sales and marketing, which are core service lines of many technology service providers in India today, according to a Nasscom and McKinsey report. 

The report titled “Harnessing the Power of Generative AI: Opportunity for Technology Services” noted that the last 6-8 months have seen a rapid evolution in Generative AI with multiple releases across models, datasets, and applications. 

While the potential impact varies significantly by industry, the highest impact is expected in high-tech, banking, and retail with hyper-personalised customer support in banking and retail, revolutionised coding, and testing in high-tech. Concision, Coding, Customer engagement, and Content generation are the four applications that can create a significant impact.

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Sangeeta Gupta, Senior Vice President, and Chief Strategy Officer at Nasscom, said, “The generative AI space will continue to evolve with the trajectory of technology service providers being reshaped and new capabilities emerging. With the full scope of its potential still emerging, continuous monitoring and re-assessment of opportunities become vital to maintain a competitive edge.” 

The report highlights four areas of opportunity emerging for technology services in the short term. Firstly, the expansion in addressable markets with the emergence of over 100 generative AI use cases, potentially driving 15-20 per cent additional growth for leading technology service providers via new/reimagined offerings like responsible AI consulting, generative AI chatbot, and legal contract management over the next 5 years.

Secondly, 30 per cent improvement in delivery productivity is projected within the next 2 to 3 years, with services like application development and BPM expected to witness a significant impact. Thirdly, there are anticipated productivity enhancements spanning the entire sales and marketing process, ranging from lead generation to faster sales strategy formulation, said the report. 

The report states that Generative AI brings both tailwinds and headwinds for technology service providers, with the impact determined by the existing service line and vertical mix, as well as an interplay of drivers and the speed of adoption. 

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Four central factors will shape this impact. These are economic alterations in the present business model, encompassing employee expenses and AI costs, the extent of scope reduction from automation, the inclination of enterprises to insource or opt for SaaS/hyper scalers, and growth prospects in both new and existing services.

Lastly, the general and administrative costs (G&A), inclusive of sales, are predicted to see a 40 per cent surge in productivity over the next three years, supported by functions like finance & accounting, legal, and HR, said the report.