Artificial Intelligence and India’s Growth Model

Artificial intelligence is poised to transform India’s services-led growth model. However, concerns regarding a dramatic jobs collapse are overstated, according to former Reserve Bank of India Governor Raghuram Rajan, who encourages companies and policymakers to prioritise adaptation over alarm.

Real Challenges, Not Doom

In a conversation with Bloomberg Television, Rajan recognised that AI introduces genuine challenges for India’s software export sector and back-office services. Nevertheless, he countered the predictions of a widespread employment crisis, suggesting that the “Indian services story can still thrive in various sectors beyond software.”

Early Signs of Disruption

India’s IT sector, historically fundamental to its services-oriented growth, is already experiencing initial impacts from AI integration. Automation technologies are starting to alter standard coding, customer support, and back-office operations, prompting some companies to reduce staff as they implement AI solutions.

A recent report from Citrini Research indicating potential revenue pressure on Indian IT firms led to a drop in technology stock prices last week, highlighting investor concerns regarding the sector’s AI vulnerabilities.

Rajan warned against what he labelled “science fiction” scenarios, urging caution. He stated that although companies at the forefront of technology may progress rapidly, the real-world deployment across various industries is typically slower and inconsistent.

The Rate of Technology Adoption

“The fastest adopters of technology are the creators themselves,” Rajan pointed out. “What they often fail to notice is that adoption rates outside innovative sectors tend to be significantly longer.”

A Gradual Shift Ahead

Rajan believes that numerous global corporations have not yet fully implemented AI, creating a substantial opportunity for Indian businesses to adjust. He predicts a smooth transition rather than a sudden shift, which diminishes the chance of quick, large-scale job displacement.

India’s vulnerability to automation is clear. As a major centre for IT outsourcing and business process management, routine roles are particularly at risk. Entry-level jobs that were once regarded as secure paths into the middle class are increasingly threatened by generative AI and advanced automation technologies.

New Opportunities Through Technology

Despite these challenges, Rajan argues that such technologies have the potential to generate new demands, especially in high-value services, engineering, and digital transformation. He noted that multinational corporations continue to develop their global capability centres in India, shifting more intricate and high-end tasks to the nation.

“The reason many companies are relocating to India is due to its pool of highly skilled service professionals,” he stated, mentioning that a consultant in India typically costs around one-fifth of a similar consultant in western countries. Coupled with access to identical AI tools, this cost advantage levels the competitive landscape.

The Need for Reskilling

For India’s software firms and their workforce, the emphasis will be on speed. According to Rajan, businesses and employees must “retool rapidly” through reskilling and upskilling programmes. However, he insisted that this is a challenge they can certainly overcome.

He also called attention to areas beyond services, noting that AI-driven robotics and automation are starting to transform global manufacturing, potentially changing trade and production dynamics. In this light, Rajan proposed that India’s policies should prioritise investments in human capital—such as education, training, and research and development—rather than pursuing capital-heavy semiconductor ambitions without achieving forefront competitiveness.