For India, AI-induced job risks hitting the youth and the middle-class could also pose a policy challenge to the government, they said.
However, AI can help address socio-economic challenges such as facilitating access to quick medical services in an emergency with ‘first responder apps’, and help lagging students to catch up significantly with customized AI tutoring, said Sean Dougherty, senior advisor at the OECD who heads its ‘Secretariat of the Network on Fiscal Relations across Levels of Government’, and is currently supporting efforts to apply AI in public finance.
OECD, or the Organisation for Economic Co-operation and Development, is a Paris-based intergovernmental organisation that works to promote economic progress and world trade.
AI tools are increasingly becoming inexpensive to deploy, presenting a huge opportunity for capital-scarce countries like India, Dougherty said in an interview to Mint on the sidelines of the Kautilya Economic Conclave in New Delhi.
Demographics shape AI impact
AI’s impact is likely to be different for different economies depending on demographic factors too, according to Marcel Fratzscher, president of the German Institute for Economic Research (DIW Berlin) and professor of macroeconomics at Humboldt University in Berlin.
“AI, and digitalization and automation in general, disproportionately affect the middle-income, and often better-paid jobs, hitting the middle class particularly hard. While I am unsure if it will cause social unrest, it will significantly test democracies like India, especially given its young population. In contrast, ageing societies like Europe see AI as beneficial for productivity due to a shrinking workforce,” said Fratzscher.
OECD’s Dougherty said that while AI is likely to boost productivity and probably wages, it also seems to be leading to a reduction of job vacancies in certain areas. He said that the risks for India are concentrated among its younger and middle-class workers.
“The risk is definitely there,” he said. “It really depends on how quickly the education system and the apprenticeship system can pivot to ensure that those workers have broad enough training and appropriate enough training to integrate these tools relatively quickly into their work.”
Opportunities and caution
At the same time, the falling cost of AI deployment offers a major opportunity, he added.
Technology firms have invested heavily in developing AI tools, but they are mostly being given away, he said. “It’s an incredible opportunity for a country like India, where capital is scarce. The models that are being developed mostly in other countries and mostly in the US can be deployed very quickly, often on local servers, sometimes even on someone’s phone,” he added.
Dougherty said AI could offer a great opportunity for older workers, particularly in Europe. Older workers have a lot of judgment and experience and if they can integrate AI into their work, they may be able to produce far more than even younger workers by combining their judgment with AI. “It could even be part of the solution to Europe’s pension crisis,” he added.
Still, he cautioned that finding the right pace of adoption will be crucial. “If it moves too fast, it does replace,” Dougherty said.
“But if adopted well, AI can make workers more productive, help reallocate tasks, and even deliver big fiscal savings in areas like healthcare and education. The goal is not to replace people, it is to augment them,” he added.
Lessons for India
To be sure, the India government acknowledges the challenges and the opportunities offered by AI.
“It will require appropriate skilling and education for India’s youth to take advantage of technological advances such as Artificial Intelligence, enabling its population to stay one step ahead of technological developments,” finance ministry’s Economic Survey 2024-25 said, adding that this would minimise or even eliminate the potential adverse impact on employment and, if possible, turn it into a force for augmenting employment.
Dougherty noted that institutional adoption of AI remains slow. “Corporate experiments and government experiments with adoption have not been very successful,” he said.
“They have been very slow to fully integrate them. Top-down approaches haven’t worked super well, but bottom-up adoption from individuals, personal use cases, is skyrocketing,” he added.
Indian educators need to integrate AI early into classrooms and training programs to help new workers adapt, he added.
There is growing evidence that if used correctly, AI could reduce inequality rather than worsen it, Dougherty said, adding that studies have shown AI tools actually helped the least skilled people the most in certain organizations.
Dougherty said emerging economies like India should not hesitate to experiment with deployment. “Local governments and municipalities often have the autonomy and resources to do things differently,” he said.
