Raghuram Rajan says AI to disrupt India’s services sector, not derail

India’s software firms and employees will have to retool and reskill “really fast,” but “this is not something they cannot overcome," Raghuram Rajan said

• AI to impact India's software sector, but doomsday fears overblown
• Indian IT firms must reskill quickly to adapt to AI changes
• Gradual AI adoption unlikely to cause large-scale job losses

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Artificial intelligence will be disruptive for India’s services sector, particularly the software firms, but warnings of a doomsday scenario are exaggerated, former Reserve Bank of India Governor Raghuram Rajan said in an interview.

“The Indian services story can still persist in many other areas outside of software, but yes, AI will be a challenge,” Rajan, a professor at the University of Chicago Booth School of Business, said Friday in an interview with Bloomberg Television’s Haslinda Amin and Menaka Doshi. “Things take time. The firms that are not technology-savvy will take more time. That is it.”

While software firms are cutting jobs as AI is rolled out more widely, it could also lead to more demand. India’s software firms and employees will have to retool and reskill “really fast,” but “this is not something they cannot overcome.”

India, home to the world’s back-office operations from call centers to IT outsourcing, risks disruption as artificial intelligence automates routine coding and customer-support jobs that employ millions. 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 commenting about 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 many firms globally have yet to implement AI at scale, leaving opportunities for the Indian software firms. The transition will be gradual and a large scale displacement is unlikely. Multinationals are also expanding their global capability centers in India, shifting more high-end engineering and digital work to the country.

“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.

AI will also reshape manufacturing as robotics becomes more efficient. Rather than subsidizing costly chip investments without getting anywhere near the frontier, it would be better to use the funds to train people and invest in the education sector and in research and development, Rajan said.