Threats and opportunities

Policy should prepare to deal with AI

A recent study by the International Monetary Fund (IMF) brought back both excitement and fears surrounding the impact of artificial intelligence (AI) on jobs and living conditions. While AI-induced automation promises higher productivity, it also evokes fear of dislocation and an increase in unemployment. The IMF research shows that almost 40 per cent of global employment is exposed to AI. What sets apart AI from previous technological advances is its ability to impact high-skilled jobs. In advanced economies, around 60 per cent of jobs could be affected by AI. Although half of these are expected to benefit, resulting in higher productivity, the other half could see displacement of labour and lower wages. The impact of AI, however, is likely to differ significantly across countries at different levels of development, or with different economic structures.
 

Emerging markets and developing economies, relying more on manual labour and traditional industries, may initially face fewer AI-induced disruptions. In India, for instance, the proportion of high-exposure employment stands at 26 per cent. The study notes that employment in India is mostly generated in the low-exposure category, such as in agriculture and semi-skilled work. Advanced economies are better positioned to gain. Developing countries, meanwhile, will find it difficult to catch up with early AI-driven productivity gains, given their lack of infrastructure and skilled workforce. Different social groups and sectors within countries are also likely to be affected differently. AI is expected to complement the work of higher-income workforce, resulting in a disproportionate increase in their labour income. Furthermore, productivity gains for firms that adopt AI are likely to boost capital returns, which may also favour high earners, thus exacerbating inequalities.
 

Notably, some of these concerns have also been brought to the fore by the International Labour Organization’s latest World Employment and Social Outlook report. For the year 2024, it projects increased unemployment globally, and the possibility of growing inequality. The report highlights slow labour-market adjustment and a lack of significant improvement in living standards. India is already witnessing early signs of AI-led disruption. A digital payments company last year laid off workers to augment AI-powered automation. Another dimension of AI is in the realm of firms’ market power. Only a handful of large corporations dominate leading AI technologies because of the initial cost involved and their capability for development.
 

Despite concerns, it is fair to argue that the adoption of AI will only grow, perhaps at a much faster rate than most people imagine. AI, particularly generative AI, will pose numerous challenges for policymakers. Aside from its implications for jobs and livelihood, generative AI, if not devolved and used responsibly, can pose risks to the social fabric. Some of these concerns were reflected in a major AI summit hosted by the UK last year. It is thus important for governments and regulators to start preparing. In the Indian context, while the threat to jobs in the initial phase is expected to be limited, AI adoption can change the dynamics in the future. India’s large presence in the IT sector presents both risks and opportunities. A lot will depend on how Indian firms adopt and work on AI.  In terms of employment dislocation, given that social security systems are not very strong, labour displacement will only increase policy challenges.