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Authors: Priyanshu Kamble, Dr Salineeta Chaudhuri, Dr Lakshay Sharma
As India moves forward to become a $5 trillion economy, a new force is quietly reshaping its foundations—Artificial Intelligence (AI). With its promise of efficiency and cost reduction, AI is revolutionizing industries across the board, from banking and manufacturing to logistics and education. However, this technological shift raises an important question: Can India’s labor market, one of the largest and most diverse in the world, withstand the wave of automation driven by AI?
A Boon or a Bane?
The use of AI technologies globally is on the rise, and India is no exception. A 2023 report by NASSCOM predicts that the Indian AI market is expected to grow at a CAGR of 20.2% and reach $17 billion by 2027. With AI being integrated into customer service bots, warehouse automation, financial analytics, and even agriculture, the economy is being reshaped at a foundational level.
This transformation brings both opportunities and challenges. On one hand, AI can help Indian industries become more competitive globally by enhancing productivity, streamlining operations, and driving innovation. On the other side, India’s labor market, which still relies heavily on low-skill and semi-skilled jobs, may find itself at the receiving end of job losses and wage suppression.
India’s Demographic Dividend at Risk?
India’s working-age population stands at over 900 million, with millions entering the job market annually. However, unemployment, especially among the youth, remains a persistent problem. According to the Centre for Monitoring Indian Economy (CMIE), India’s urban unemployment rate stood at 9.2% in June 2024. The issue is not only the number of available jobs but also the quality of those jobs.
Many low-end service sector jobs, such as call center operations, retail billing, data entry, and logistics coordination, are being increasingly replaced by AI systems and robotic process automation (RPA). The rise of AI-powered tools like ChatGPT and Gemini has increased the viability of replacing human customer support agents.
According to a World Economic Forum (WEF) report (2023), automation could displace 85 million jobs globally by 2025, but also create 97 million new roles—primarily in technology, data analytics, and human-centric positions. The challenge for India is whether we are equipping our workforce quickly enough to transition into these new jobs.
Skill Gap: The Achilles’ Heel
India’s skill development infrastructure is still catching up. While government schemes like Skill India and Pradhan Mantri Kaushal Vikas Yojana (PMKVY) aim to bridge the gap, the progress has been slow. A report by the Aspen Institute India showed that only 2.3% of India’s workforce has received formal skill training, compared to 80% in Japan and 96% in South Korea.
The jobs being created in the AI economy often require proficiency in coding, data science, AI ethics, and systems thinking—capabilities that most of India’s job-seeking youth do not have. Moreover, rural areas and economically disadvantaged communities are at a greater risk of being left behind, worsening social and economic inequality.
Case in Point: Indian IT Sector’s Pivot
India’s IT sector offers a clear example of this transition. Once considered the backbone of India’s service economy and employment engine, the sector has witnessed a significant shift in demand for hiring new workers. Companies like Infosys, TCS, and Wipro are investing heavily in AI and automation tools to handle basic IT maintenance, testing, and customer interactions. While mid-level jobs are being phased out, companies are also hiring fewer freshers, opting instead for fewer but more specialized roles.
A 2023 study by Naukri.com found that entry-level hiring in IT services dropped by 17% year-on-year, while job postings requiring AI and machine learning skills increased by 31%. This is a sign of both upskilling urgency and employment contraction of traditional IT roles.
Informal Sector: A Silent Casualty?
The informal sector, which accounts for 80-85% of total employment in India, may not experience direct AI disruptions in the short term. However, indirect effects—like supply chain restructuring, platformisation of gig workers, and digital interfaces—could still undermine its stability. For instance, the rise of AI-based platforms in agriculture (like precision farming apps and automated irrigation systems) may exclude farmers without digital literacy or access to smartphones.
Similarly, platforms like Swiggy and Zomato are already experimenting with drone deliveries and robot-operated kitchens, raising concerns about the future of millions of gig workers in delivery and food prep roles.
Global Parallels and Lessons
Globally, countries like China, Germany, and South Korea have embraced automation while simultaneously investing in human capital and universal basic services. China, for instance, had made vocational AI training mandatory in many secondary schools, while Germany’s “Industry 4.0” plan includes worker reskilling as a central pillar.
India can draw lessons here. It’s not automation itself that causes job losses; it is the lack of readiness and safety nets that makes it dreadful. There is a dire need for:
Significant public investment in digital literacy
Vocational training tailored for jobs in the AI economy
Incentives for the company to retain and retrain employees instead of laying them off
A stronger social protection framework
Policy Priorities Moving Forward
To harness the AI economy’s full potential while safeguarding livelihoods, policymakers must shift from a reactive to a proactive approach. Some immediate steps could include—
AI literacy in public education: Introduce AI and data science as core subjects in schools and colleges.
AI+Human workforce planning: Encourage industries to adopt a blended model, where AI augments rather than replaces human capital.
Inclusive skilling programs: Focus on marginalized communities, ensuring equitable access to training.
Job creation in new sectors: Promote industries like green energy, creative arts, mental health, and AI ethics, which demand human insight.
Furthermore, collaboration between academia, industry, and government is crucial to building a resilient labor market. India can become a global AI powerhouse—but only if its people are empowered to contribute meaningfully to that growth.
Conclusion: Human-Centric AI is the Future
AI is neither a villain nor a savior—it is a tool. Whether it becomes an economic equalizer or a force of exclusion depends on the choices India makes today. The AI economy holds immense promise, but its success must be judged not just by GDP growth or corporate profits, but by the lives it improves and the dignity it preserves.
The question, then, is not whether India’s labor market can survive the automation wave, but whether it can ride it confidently into a future that is more inclusive and innovative.
Mr Priyanshu Kamble is graduate student in BSc Economics, and Dr Salineeta Chaudhuri and Dr Lakshay Sharma are assistant professor of Economics at Christ University, Delhi NCR Campus
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