Name: The Global South looks to India for AI leadership but its own labor market is at risk | The Dip
Uploaded: 2026-02-20T17:04:06.000Z
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The unchecked use of AI adoption could destabilize India's workforce.

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Out of the roughly 900,000 engineering graduates, the tech sector right now is perhaps only absorbing 120,000.

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A lot of the tech and service sector jobs are being substituted as a result of the adoption of AI.

The Indian story has to be quite critical.

So perhaps a country like Germany or the UK or the US could say let's outsource the AI labor impact to India, India and let Indian workers deal with it.

Let's turn our attention to India now and the AI impact Summit there has just finished and it's seen a number of high level announcements, including at least $200 billion.

That's two separate hundred billion dollar announcements on investments in data centers, the launch of homegrown AI models and speech systems.

And it's all part of the Indian economy's bigger push for sovereignty and influence on the global stage.

I do feel that India is in a position to lead what would be considered as the wide scale technological adoption of how AI and its application across sectors could be seen in the next particularly, you know, five to 10 years and could set a precedence for many of the other global south countries to, to take that leap forward.

Having said that, I am also aware that the unchecked use of AI adoption could destabilize India's workforce.

And as we know, the broader implications of the use of unchecked AI across sectors could not affect just what you would consider as semi formal or unorganized informal jobs.

But what you consider also is routine white collar jobs which have lacked advanced technological adaptation.

And what I have in mind is basically jobs that have been created out of the IT sector.

I mean India's post 90s growth story and it's landing on the world economy scale has been all about IT and financial services and some of these sectors.

Now what you're seeing is that out of the roughly 900,000 engineering graduates who come out looking out for fresh jobs, the tech sector right now is perhaps only absorbing 1.2 lakhs, which is roughly to what would be 120,000 people.

And that is troubling because what you're seeing is a lot of the tech and service sector jobs are being substituted as a result of the adoption of AI.

And I think that's where the Indian story has to be quite, quite critical.

It should not be seen as a backend space for us and you know, let's say European companies to use wide scale adoption across sectors, substituting, let's say capital for labor.

While it can increase or enhance efficiency, but it can also destabilize employment.

Okay, so let's break this down into two parts, starting with the digital economy that you mentioned.

And then we'll get to a deeper dive on the jobs.

I mean, you've spoken about the success story and France's president seems a bit jealous of India.

He said that India has built something that no other country in the world can.

A digital identity for 1.4 billion people, a payment system that now processes 20 billion transactions every month, a health infrastructure that has issued 500 million digital health IDs.

So how would you describe the state of India's digital economy as it is at the moment?

Well, on the digital identity part, the availability or access of, let's say, cheap available data to the average Indian has been a highlight of the last, probably decade, decade and a half of the Indian story.

And digitization has enabled a wider consumption of information coming out from India.

Digital platforms, including social media.

You have an expansive use of, let's say, social media platforms like YouTube, where almost 97 to 98% now, those of households having access to smartphones, are consuming a lot of information.

What it does is it changes a lot about what you perceive of your lived experience to be.

There's a lot for aspiration now in terms of pushing for upward mobility.

But where I think the digital identity story is most intriguing is in the case of financial inclusion.

The use of United Payments Interface, what we call as upi, for making payments, including for those working in the informal economy.

In fact, very few people perhaps know that as India's workforce has 90% of its workforce working in the informal sector, almost my sense is 70 to 80% of those transactions happening in the informal economy, particularly in the urban areas, are now being anchored through the financial Inclusion network of upi.

And that's, that's partly explaining that how well the digitization process in financial inclusion, getting access to perhaps public distribution systems.

And it's important for the audience to understand that India just does not offer a big consumption economy.

It also offers a wide presence of a demographic which is keen to consume more and it doesn't really care much about whether they're imports or domestically homegrown produced goods.

And in the urban sectors, you see that happening a lot more.

And much of this consumption is being shaped by the digital process of having availability to apps.

I mean so many of these have these things like essentials, groceries, consumer goods accessible to at the household level.

I mean that's something which is unprecedented.

There's no country I can think of perhaps, maybe Indonesia to a certain extent which has seen that rapid adaptation of digitization at a household level.

I mean, it seems like the perfect environment for AI to slot in then.

So let's dig in a bit more about what you were saying earlier.

How do you think that the impact of AI, for better or for worse, will affect India in a different way to how it might affect other economies like the US or Europe?

Okay, so I think we have to see this in perspective.

As I said earlier, the, the traditional high skilled jobs in India, which was in the organized formal sector, which have been part of India's urban growth story.

You know, you talk about Bangalore, cities like Pune, Gurgaon, Hyderabad, these are hubs of IT sector created jobs from the 90s, right.

And they've also been the growth engines for the Indian economy at large.

Now what's happening is the entry level coding, testing, documentation, customer support, back end processing of data.

These were all the kind of opportunities that fresh young graduates were being absorbed amidst a rapidly expanding higher education system.

Now technically, AI systems can perform these tasks quite efficiently and effectively, right?

They excel in environments where outcomes could be clearly defined and training data is abundant.

But I say at least a conversation on oversight, like you have global projections that generally talk about aggregate productivity gains from AI, at least in the medium term, in the Indian context, to be merely incremental.

I don't see transformative change happening, let's say over a few years.

There are distributional consequences however, which I think we need to look at now.

There are structural asymmetries that are present across routine labor jobs.

Since so many jobs are in the informal sector, you'd expect the impact of that to be almost unchecked or undocumented.

We may not know the nature of technological disruption that may be caused in the unorganized informal sector.

Which means that the only way you can check for any evidence of what AI is causing is in the organized formal sector, which is in areas like IT financial services.

Now a lot of this has labor force participation rate.

India's biggest concerns have been in job creation.

If you look at the last 10 years, India is no longer facing issues of underemployment which it used to before, or disguised unemployment is facing something worse.

It's facing double digit unemployment amongst youth who are educated.

And the worst impact of that is amongst female urban educated youths.

So when you have a context where job creation is a concern, the presence of labor intensive jobs is a concern.

If you expect almost 40 to 50% of the work that is already available to be replaced by the adoption of a particular technological force, you are clearly looking at a wide scale impact which is going to be very difficult to be measured.

I want to jump in on just one point that you were saying there though, because it sounds like it's exactly the, the industry, the sector which India has excelled at and which has been the massive contributor to the GDP which is going to be the one that is set to be most impacted by AI.

So it's these kind of AI tools where they plug in easily to where work is already kind standardized and digitized and that's in the formal sector.

And it sounds like also because a lot of countries in Europe, the US as well, the UK have shifted, outsourced, offshored a lot of their back office tasks, let's say to India.

And that's been a massive industry when it comes to it.

And yet it sounds like what may happen or one significant risk is that the risk to labor as a result of the implementation of AI is also going to be offshored to India as well.

And it's going to be Indian workers, skilled workers, workers who are highly qualified, who are going to see the brunt of this impact.

So perhaps a country like Germany or the UK or the US could say let's outsource the AI labor impact to India and let Indian workers deal with it.

Well, quite accurately, unfortunately that's, that's what I see happening.

But I think one of the things that as a state or as a government that Indian policy environment has to be aware about is this process of offshoring happens in areas which allows for two things to happen.

Wage mobility, which is increasing of wages.

India's labor market has been in the organized sector, deeply compressed.

I mean IT sector also gives you a lot of evidence you don't have very high wages across IT sector jobs.

There is however precedence for certain companies like TCS or Infosys which have done dramatically well as Indian companies to set resolutions for high value addition that is happening.

But to what extent these companies are able to compete with the technological development that's happening with the widespread use of AI, let's say in the US or in Germany, I have my doubts.

And one of the biggest reasons for this is that you don't have the same quality of human capital development that was happening during the 90s when the absorption of Internet, ICT, information communications technology led to this huge boom, changing what was called as the engineering programs from civil services to, sorry, civil engineering to what you call as computer science engineering.

And then you had suddenly this flurry of computer science engineers who could do basic coding, who could work on apps, who could create apps very quickly.

In fact, India's digital development is in terms of app development, coding.

But the interesting statistic for people to look at is that almost 60 to 70% of the job creation that has happened in India the last at least seven to eight years has been in the unorganized informal category.

Which means that the lack of jobs in organized sector is pushing people towards the informal sector of which you would see very little of any impact.

So just to circle back to the main challenge, I think technologies that augment or automate easy tasks risk eroding what you would consider as an already exposed employment base.

You can raise productivity without collapsing participation.

But at the same time, this distinction is not very semantic.