India’s Low Labour-Cost Advantage Under Threat Due To Tech Advancements: CEA Nageswaran

Chief Economic Advisor (CEA) V Anantha Nageswaran has warned that India’s low labour-cost advantage is under threat due to advancements in technology across developed nations.

Speaking at the ongoing Startup Mahakumbh, Nageswaran underlined the growing challenge posed by automation and AI-driven innovations. 

“We already have an extremely low labour-cost base, but this advantage is being eroded by the technological advancements made by developed countries,” he said, while addressing a session on the macroeconomic outlook and its impact on startups at the three-day event.

Underlining the need to balance technology and labour, the CEA said, “We need to define technology in such a way that it is labour-augmenting rather than labour-displacing.”

Nageswaran also pointed out that Indian startups face competition from developed countries. 

While these developed countries are investing heavily in artificial intelligence to boost their competitiveness, the advancements will benefit ageing countries like Japan and Europe more as compared to young demographic countries like India, he said, adding that there is a need to balance between AI investment and ensuring employment for Indians. 

However, he added that India has key strengths in intellectual inputs, data generation and software professionals, which can help its startups compete globally, particularly in borderless services.

In the past, the CEA had also underscored several challenges and opportunities posed by AI. Last year, he emphasised that harnessing AI will benefit India’s youth as the technology may lead to “huge dislocations” soon. 

Despite acknowledging that the long-term potential of AI is promising, he has maintained a stance that AI poses challenges in the short term, particularly in the BPO sector. Nageswaran, in past, had also pointed out that the emergence of AI might reduce annual productivity growth by approximately 0.3 percentage points in the coming years.

Startups have been increasingly using AI for automation and cost-cutting, which can lead to workforce disruptions and layoffs.

Two days back, foodtech major Zomato reportedly laid off nearly 600 employees from its customer support team.

As per Outlook Business report, the employees were laid off due to performance issues, tardiness, and an overall restructuring effort at the foodtech major. Besides, Zomato has been increasingly leveraging AI to automate its customer support functions to trim costs.

Moreover, many startups are also using AI to double down on their efficiency or replaying. Recently, Razorpay founder Harshil Mathur said almost 80% of the concerns raised by customers in the company are resolved by AI itself. 

A few years ago, Paytm too was said to be downsizing 10-15% workforce due to the adoption of AI-powered automation.