Ex-RBI Governor Raghuram Rajan Says AI Will Disrupt India's Services Sector, But Large-Scale Displacement Unlikely

(MENAFN- Live Mint) Artificial intelligence will disrupt India's services sector, particularly the software companies, but fears of a doomsday scenario are exaggerated, former Reserve Bank of India Governor Raghuram Rajan said on Friday, playing down concerns of a large-scale jobs crisis due to rapid technological advancement.

Speaking in an interview with Bloomberg Television, he acknowledged that AI poses a challenge, but stressed that“the Indian services story can still persist in many other areas outside of software.”

“Things take time. The firms that are not technology-savvy will take more time. That is it,” Rajan, a professor at the University of Chicago Booth School of Business, further added.

His remarks come at a time when several technology entrepreneurs and senior executives have warned of a potentially severe impact of AI adoption on employment, particularly entry-level and routine white-collar jobs.

AI could lead to more demand

Even as software companies trim headcount amid wider AI adoption, the technology could also generate fresh demand for workers, Rajan said. The country's software firms and their employees will have to retool and reskill“really fast,” he cautioned, adding“this is not something they cannot overcome"

India has long been regarded as the world's back office, powering everything from call centres to IT outsourcing. These sectors are at high risk of disruption as AI automates routine coding and customer support jobs that employ millions in the country, and several more who are preparing to enter the workforce in the coming years.

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A recent note by Citrini Research warned that Indian IT firms could see pressure on revenues, triggering a selloff in their stocks earlier this week.“Let's not get overly wound up in science fiction and think that is the outcome,” Rajan said, referring to the Citrini note.

“The fastest users of technology are the people creating the technology. Sometimes there is a sense that this is going really, really fast. What they don't see is adoption outside the frontier is much longer," he said.

Large-scale displacement of jobs is unlikely: Rajan

Rajan also noted that many companies globally have yet to implement artificial intelligence at scale, leaving significant opportunities for software firms to step in. The transition, he said, is likely to be gradual, making the prospect of large-scale displacement unlikely, Bloomberg reported.

According to Bloomberg, he also pointed out that multinationals continue to expand their global capability centres in India, shifting more high-end engineering and digital functions to the country, a trend that could offset disruption in routine roles.

“The reason many firms are moving to India is because of its highly skilled service people,” with a consultant in the country being“one-fifth the price of a consultant in the West.” That cost advantage, combined with access to the same AI tools, helps level the playing field, he said.

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According to a BCG report published last year in December, India's global standing in talent is strengthening steadily. The country has gained 1.9 percentage points in its share of global AI professionals and 1.4 percentage points in STEM talent. This growth placed the country within the top 10 worldwide across every major talent category tracked.

Supported by one of the world's largest educated populations and a strong presence in leading international universities, India is well-placed for sustained long-term growth, the report said.

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