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August 29, 2018

Indian Economy: Rise of the machines

Artificial intelligence (AI) is beginning to have a profound impact on all walks of life. AIfocusses on developing cognitive abilities of machines and is therefore materiallydifferent from technological advancements of the past that were focused onaugmenting computing power. Today, the term ‘AI’ generates both fascination andfear in equal quantities. Fascination, because replicating human intelligence meansaugmenting human capabilities and well-being. Fear, because AI continues toreplace cognitive tasks and could one day take over humans.


While robots and machine learning have begun to pervade our lives much closer anddeeper than we probably realize, the verdict is still not out on whether AI comes withbenefits unlimited. For India, specifically, it’s widely regarded a mixed blessing.Despite the productivity gains it can bring to the economy, it also raises concerns onjobs and inequality.


  • Productivity: Over time, productivity has got a lift from technological advancement and innovation. This has been the case with India as well when technology and reforms came together to give a substantial boost to productivity and growth in the decade of 2000. However, given the long lags with which technology reflects in productivity statistics as well as inability to appropriately measure productivity, technology/AI may take time to show up in total factor productivity growth.
  • Jobs: AI raises concerns of job losses with job displacement/ disruptions expected at a faster pace, given the exponential growth of AI. However, while AI will gobble a number of existing jobs, it will also create new ones in complementary areas. This would in turn increase the need for large-scale reskilling. For developing countries such as India, low labor cost will prevent swift substitution of labor by machines in the medium run, but over the long run, disruption looks inevitable.
  • Inequality: Inequality is set to rise as the return on capital will increase compared with the return on labor. This will continue to concentrate wealth in a few hands, can be socially disruptive and pose a major policy challenge for a country like India, which already has high inequality and is set to add millions to the workforce in the coming years.