AI Can Upend Labour Market, Need Robust Institutions To Tackle It: Economic Survey 2024-25

At a time when generative Artificial Intelligence (GenAI) has taken the world by storm and continues to grow by leaps and bounds everyday, the technology found prominent mention in the Economic Survey 2024-25.

The Survey, tabled in the Parliament by finance minister Nirmala Sitharaman on Friday (January 31), a day before she will present her eighth Union Budget, called for developing robust institutions to protect the country’s labour market from AI’s disruption. 

The Survey said that AI can cause large-scale labour market disruptions. Highlighting researches from the International Monetary Fund, the International Labour Organisation, Goldman Sachs, among others, it said that AI-led automation can prove to be challenging for the Indian economy. 

“Protracted labour displacement is something that a labour-surplus country like India cannot afford. Our primary challenge is the challenge of numbers… India is a majorly services driven economy, with a significant share of the IT workforce employed in low value added services. Such jobs are the most susceptible to automation, as firms in a bid to cut costs may substitute labour for technology… India is also a consumption based economy, thus the fall in consumption that can result from the displacement of its workforce is bound to have macroeconomic implications. If the worst-case projections materialise, this could have the potential to set the country’s economic growth trajectory off course,” the Survey said. 

Highlighting the need to take into consideration the potential adverse consequences of AI, the Survey said that establishing new and upgrading existing institutions will play a pivotal role in addressing the “structural issues that can intensify the impact of AI on India’s labour market”.

It is pertinent to note that the impact of AI advancements on jobs was also highlighted by last year’s Survey. Back then, the Survey said that advances in AI over the coming decades threaten to leave workers across skill levels exposed to job losses, which can create barriers for sustainable growth of the Indian economy. It is worth mentioning that in the past year or so, many companies, including Paytm and InMobi, have undertaken layoffs citing AI-led automation. 

The Economic Survey 2024-25 called for a sharp focus on building strong institutions to counter the effects of AI. It said there is a need for three different types of institutions. 

Firstly, India needs enabling institutions to facilitate a transition of the workforce to the new job market and equip people with skills critical for long-term employment. Such institutions are critical to block the AI threat to India’s vast “low-skill and low-value-added services”, the Survey said. Secondly, it called for insuring institutions that help secure a standard of living during the shift, keep inequalities in check and aid in keeping the social fabric cohesive.

The survey proposed a third type of institution – Stewarding Institutions. In essence, these institutions will be responsible for designing approaches towards AI and other such technology in a way that balances public welfare and doesn’t stifle innovation.

“The products of science are neither good, nor bad and what determines their net-impact on society is how they are applied… It implies that policymakers demonstrate a certain degree of cognisance when it comes to emerging technologies, so that when the need arises, they stand well-placed to mitigate any adverse effects that emerge as by-products of technological applications. These institutions would be agile, crosscutting across sectors and up to date on the latest developments, so that they are equipped to identify both opportunities and threats,” the Survey added. 

Besides, such institutions will also be required to increase social acceptability of AI by promoting the right levels of transparency and accountability in AI applications. 

However, the Survey also said that India has time to build its institutional capacity aligning with its “social structures, regulators, cooperatives, and policymaking institutions”, as AI is still in its nascent stage and every nation is still finding their footing in the space. 

The Survey’s analysis of the disruption capabilities of AI comes at a time when it seems that there is no ceiling for innovations in the space. While it was believed that Microsoft-backed OpenAI is leading the AI space, the release of its latest models by Chinese AI company DeepSeek, earlier this month, sent shockwaves across the global technology ecosystem.

As for India, the country is likely to soon have its own domestic large language model (LLM). On Thursday (January 30), IT minister Ashwini Vaishnaw said that the Centre has selected 10 companies that will supply 18,693 graphics processing units or GPUs — high end chips needed to develop machine learning tools that can go into developing a foundational model.

He also said that with all the support the Centre is providing to build India’s own AI model, the cost will be the lowest in the world. Soon after this, the IndiaAI Mission floated a proposal inviting applications from startups, entrepreneurs, and researchers to collaborate on building foundational AI models trained on Indian datasets.