What Does AI Imply for India’s Growth?
doing business, no matter what the rankings say. We cannot sit back and say that we will sidestep these problems by growing only along the services route. Global exports in labour-intensive products like garments and textiles, toys, footwear make up ~1,040 Billion dollars.
By comparison, the domestic market in these sectors is only 165 billion dollars. The single most important factor in countries that have made the transition from poor to rich in the last 70 years is that their firms have competed for the global market and won. We too must make our governing ecosystem more investor friendly to be competitive in these sectors and win large shares of the global markets if we want to grow fast and create jobs for Indians in large numbers.
Second, while recognising that automation and AI are indeed making pathways to growth more difficult, we must prepare ourselves to leverage the tools that are becoming available, instead of trying to insulate ourselves from their effects. One classic problem in Indian policy making has been that we introduce market distortions and rigidities in the name of social protection which prevent our economy from adjusting efficiently. MNREGA preventing migration and job growth, MSP preventing efficient agricultural production, labour laws preventing manufacturing growth are all examples.
We must systematically replace them with policies that accomplish the social protection we want without distortions, like DBT cash transfers, portable rations and social unemployment insurance mechanisms. But just as important as correcting past mistakes, is to not commit future ones by trying to limit productivity growth from AI capabilities in either manufacturing or services. As the world faces more modes of
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