With Artificial Intelligence (AI) growing at a rapid pace, policymakers are compelled to think of strategies to deal with its impact.
The Economic Survey argues for a need for institutional responses to address AI’s challenges, particularly as its effects are likely to be more pronounced in India due to its labour-intensive economy and low per capita income.
The gravity of the challenge becomes evident when reading the last year’s Economic Survey. The 2023-24 survey noted that India must create an average of 7.85 million jobs annually in the non-farm sector by 2030 to accommodate its expanding workforce.
As a services-driven economy with a significant share of IT workers engaged in low-value-added tasks, these jobs are particularly vulnerable to automation and the emergence of AI.
The Economic Survey, 2024-25 reflects on emerging AI concerns, posing a critical question:
“As policymakers, it would benefit us to ask, ‘What were the problems in the world that demanded AI as the answer?’ In other words, is AI a solution in search of a problem?”
It attempts to answer this question, acknowledging the complexities of innovation: “Innovation does not always respond to a problem; it often emerges as a product of human ingenuity. However, when innovation poses the potential for great societal cost, its value must be judged in the context of its potential losses.”
The labour market is already undergoing shifts in anticipation of AI-driven changes. The survey warns: “Nobody knows how long these changes may last, but they can leave a lasting impact on the physical and mental well-being of those affected. The responsibility for course correction will fall to the public sector. From a policymaker’s perspective, it would be costly to dismiss fears as exaggerated or adverse impacts as overestimated.”
To mitigate these challenges, the survey proposes structural reforms. It emphasises equipping children for an AI-driven future, establishing safety nets for workers, and revising regulatory frameworks to align AI applications with societal values. “Policymakers must ensure that innovation is balanced with accountability and transparency,” the survey says.
However, the responsibility has to be shared by the corporate sector, too. The survey cautions:
“If companies fail to optimise the introduction of AI over a longer horizon and do not handle it with sensitivity, the demand for policy intervention and fiscal compensation will become unavoidable.” As the IMF suggested, as a fallout, the state may resort to taxing profits derived from labour replacement.
However, such an approach risks leaving everyone worse off, ultimately stunting the country’s growth potential. The economic survey advocates for a tripartite compact between the government, private sector, and academia. This collaboration would ensure that the gains from AI-driven productivity are equitably distributed, steering India toward inclusive growth.
To further this vision, the survey proposes the creation of ‘Stewarding Institutions’:
“These institutions must be agile, cross-sectoral, and abreast of the latest developments. They should be equipped to identify both opportunities and threats, designing approaches that delicately balance public welfare without stifling innovation.”
For instance, AI applications in healthcare, health insurance, and education—sectors inherently human-centric—would benefit significantly from enhanced transparency and accountability. Stewarding Institutions could ensure that these advancements prioritise public welfare while fostering sustainable innovation.
The challenge from rapid growth of AI is not limited to societal changes, it also involves a huge environmental cost. The amount of power needed to run the AI data centres globally is the same as the amount of electricity consumed by India. Even a huge amount of water is needed to maintain temperatures. Are we ready to bear such a cost?
