Veteran venture capitalist Vinod Khosla has issued a bold warning about the future of India’s massive IT services industry, saying the traditional model that built the sector could soon collapse under the pressure of artificial intelligence. 

Speaking on the latest episode of Podcast Alpha, Khosla did not hold back. “India’s IT services industry will be gone,” he said, “That’s not a hedged observation.”

The comment comes at a striking moment for the sector. India’s IT and business process management industry is on track to cross $300 billion in revenue in FY26 for the first time, according to NASSCOM. Exports alone are estimated at around $200–233 billion. The industry supports nearly 6 million jobs and remains one of the country’s biggest economic pillars.

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However, even as headline figures grow, the industry is showing signs of strain. Growth has slowed to around 5–6%, and hiring has cooled across major companies. Big Indian IT firms have added only limited net headcount in parts of FY26.  

At the same time, artificial intelligence tools are already beginning to handle work that once drove the sector’s expansion, coding, testing, customer support and routine backend processes. 

AI threat to the old IT model

Khosla believes this change is not gradual but structural. According to him, AI agents will soon take over most of the cognitive and repetitive work that Indian IT companies currently outsource to human workers, and at a much lower cost. 

He has made similar remarks earlier as well, suggesting that IT and BPO services could “almost completely disappear” within the next five years as AI systems outperform humans in many skill-based tasks. 

India’s IT industry was built on a simple foundation, including low-cost skilled engineers, strong English ability, and large-scale outsourcing contracts from global clients. That model, Khosla argued, is now directly challenged by fast-improving large language models and autonomous AI systems. 

A call to shift from outsourcing to AI building 

Despite his warning, Khosla is not suggesting India has no path forward. Instead, he believes the country must rethink its role entirely. He argued that India’s biggest advantage is still its engineering talent pool, but that talent needs to move away from traditional outsourcing work and into building and deploying AI systems at scale. 

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“India’s advantage… is the same engineering talent base that built the IT industry, if redirected toward deploying AI at scale… it could build a new export business,” he said during the podcast, referring to a segment around the 32:57 mark. 

He suggested areas like healthcare, education, agriculture and public services, where AI tools could be deployed across large populations. In his view, this could create an entirely new kind of global export industry for India. 

Khosla invested about $50 million in OpenAI in 2018–19, when the company had no product and no clear revenue model. At the time, even his own firm reportedly told investors that the decision “made no logical sense.” 

By January 2026, OpenAI had reached about $20 billion in annual revenue, a shift Khosla uses to explain why traditional forecasting often fails in breakthrough technology cycles.

“If I said to you OpenAI will have no revenue in January of ’23, but in January of ’26, it’ll have $20 billion, you’d say I’m crazy,” he said. “So sometimes it’s better to realise you can’t forecast instead of trying to make a forecast.”

For India, the focus is one the  sector that powered one of the country’s biggest economic success stories, the next chapter may depend on how quickly it can adapt to a world where software work itself is being rewritten by machines.