Archives: Publication

What is the impact of rapid technological advancements on employment in the Indian economy? In this post, Kathuria and Dev analyse ‘Consumer Pyramids Household Survey’ data to explore this question. They note a consistent decline in the share of low-skilled workers across sectors, along with reduced employment prospects, particularly in the post-Covid-19 era. They advocate for training these workers – especially women – so that they can transition into higher-skill, higher-paying jobs.

In the past few decades – particularly in the post-Covid-19 period – the world has witnessed rapid technological advancements that have revolutionised industries and labour markets. The Fourth Industrial Revolution (‘Industry 4.0’), characterised by artificial intelligence (AI), automation, and the Internet of Things (IoT), is redefining how we work. India, a key player in the global economy, is no exception to this trend. In this scenario, it is critical to assess the impact of technological progress on employment trends in the country.

In our new research (Kathuria and Dev 2024), we analyse recent trends in technological advancements and employment shifts in the Indian economy. Using data from the Consumer Pyramids Household Survey (CPHS) by the Centre for Monitoring Indian Economy (CMIE), we examine developments over the past five years, starting from 2019. Our study reveals two key trends: (i) a consistent decline in the share of low-skilled workers across all sectors (primary (agriculture), secondary (manufacturing), and tertiary (services)), and (ii) an increase in skill intensity, albeit at varying rates across sectors, is observed, wherein low-skilled workers are gradually being replaced by their more skilled counterparts.

No escape from skilling

The threat of technological displacement looms large over India’s labour market. The pandemic has accelerated automation, prompting many industries to adopt digital tools that reduce their reliance on human labour. While this transition has benefited skilled workers, our research reveals a troubling reality for low-skilled labourers: while automation increases demand for complementary skills, it also brings the risk of job displacement. Without significant intervention, low-skilled workers are likely to be left behind. As businesses adapted to new technologies and remote work arrangements during the Covid-19 pandemic, the decline in the share of low-skilled workers accelerated. Low-skilled workers bore the brunt of this disruption across all sectors – primary, secondary, and tertiary – though at varying rates.

For India, the ability to work with technology is more crucial than the fear of job replacement. In other words, job polarisation, a characteristic of developed and aging economies, has not yet fully manifested in Indian data. However, low-skilled workers are likely to face greater long-term challenges due to growth and the structural transformation of the economy, which is expected to see a further decline in the share of the primary sector.

This shift signifies a broader transformation in India’s employment landscape: skill is becoming the most valuable asset, even in sectors once havens for the unskilled – Figure 1 below shows the changing trend in the skill composition of workers across the three sectors. In agriculture, the share of low-skilled workers declined while medium-skilled workers filled the gap. There was also a notable increase in the employment of medium-skilled and skilled workers in the secondary and tertiary sectors. The tertiary industries saw the highest growth in professional jobs, with over 65% of their workforce now consisting of qualified workers.

Figure 1. Workers’ skill composition across sectors

Of late, the demand for skilled workers has risen significantly. The share of skilled and specialist workers has steadily grown across the secondary and tertiary sectors. Our study points out that industries like IT (information technology), financial services, and healthcare have seen a surge in the employment of highly educated workers, those with at least a 12^th-grade education or a university degree. Tertiary industries, which include booming sectors like e-commerce, digital media, and online education, have embraced this trend. Over 65% of the workforce in the services sector now consists of skilled and specialist employees. As more industries adopt AI and automation, workers with critical thinking, creativity, and problem-solving skills are becoming increasingly valuable.

No job polarisation and gender disparities

Notably, while India is witnessing a rise in skilled labour demand, it has not followed the job-polarisation trajectory of many developed countries. In Western economies, the disappearance of middle-skill jobs has led to a ‘hollowing out’ of the labour market, where only high- and low-skill jobs remain. In contrast, India’s middle-skill segment is growing, reflecting a more balanced evolution of its labour market. There has been an overall upskilling of the labour market.

While employment opportunities have improved for skilled women, gender disparities in employment remain significant. For low-skilled women, the chances of securing employment have diminished dramatically, falling by nearly 50% since 2019. Given the prevailing gender inequalities and the evolving skill requirements in the labour market, low-skilled women face disproportionately greater challenges. These challenges arise both from gender-biased labour market practices and from a lack of the necessary skill set. Our findings indicate that these women are among the most adversely affected groups in the context of these shifts.

However, there is a silver lining. Skilled women are beginning to gain traction in the labour market. Industries like healthcare, education, and digital services provide more opportunities for women with higher education. The rise of remote work and flexible employment options, catalysed by the pandemic, could also boost female workforce participation in the coming years.

A ray of hope: The case for skilling India

Despite the challenges, the findings offer hope. India stands at a crossroads. As the country’s economy continues to grow, it must confront the challenges posed by rapid technological advancement. While the rise of AI and automation presents opportunities for growth and innovation, it also threatens to exacerbate inequality and push low-skilled workers further into the margins. The workers who upgrade their skills have a better chance of thriving in a technology-driven economy. As more sectors embrace AI and automation, the need for complementary human skills will grow. For example, while AI can handle repetitive tasks, it still requires skilled human workers to interpret data, solve complex problems, and design new systems.

There is a need for policy interventions to address the skills gap. Targeted programmes that provide low-skilled workers the training they need to move into higher-skill, higher-paying jobs could mitigate the skill gap. This is particularly crucial for women, who could benefit from skilling initiatives designed to help them enter sectors where they have traditionally been underrepresented.

The views expressed in this post are solely those of the authors, and do not necessarily reflect those of their organisations or of the I4I Editorial Board

The global economic and financial order stands at the precipice of a seismic shift. Within just 24 hours of the new U.S. administration taking office, the early outlines of its vision are already signaling profound changes in how the United States engages with the world. Warnings about currency manipulation, coupled with proposals to create a Department of External Revenue, hint at a trajectory that could redefine international trade and finance. Policies aimed at reshoring manufacturing, imposing steep tariffs, and realigning energy and technology priorities have sent ripples — if not outright shockwaves — through global financial markets.

For emerging markets and developing economies, the fallout could demand a fundamental recalibration of trade strategies, financing models, and approaches to sovereign debt management and development aid. The longstanding reliance on multilateral frameworks and the global financial safety net may no longer be a given. These nations could find themselves navigating these policy shifts independently, analyzing their impact and formulating responses in an environment marked by heightened uncertainty.

When viewed through the lens of financial channels — capital flows, exchange rates, and investment patterns — the implications of the U.S. policy reset for the Global South become clear. These nations are poised to experience the brunt of these changes through five critical financial pathways.

One headline policy is the imposition of a 25% tariff on imports from Canada and Mexico starting February 1, 2025. Proposals for broader tariffs potentially target BRICS nations, disrupting global trade flows and directly affecting developing economies. Higher tariffs can reduce trade surpluses for export-heavy BRICS nations like China and India, potentially causing a decline in foreign exchange reserves or an increase in debt financing. For developing countries reliant on BRICS supply chains, this may reduce trade finance opportunities and cross-border lending. The tariffs are expected to strengthen the U.S. dollar, putting downward pressure on the currencies of the developing world. This could exacerbate debt vulnerabilities for nations with sizeable dollar-denominated debt burdens, common among Global South economies. Markets typically react to protectionist measures with increased risk aversion, leading to capital outflows from emerging markets as investors seek the safety of U.S. assets, pushing up borrowing costs for developing nations.

Second, the administration’s energy policies, including dismantling electric vehicle mandates and boosting fossil fuel industries, could have mixed consequences for BRICS and resource-dependent economies. Russia and Brazil, as significant oil and gas exporters, might see a short-term boost in demand. However, the global transition toward green finance could be undermined, creating uncertainty in renewable energy investments in emerging markets. Energy-exporting nations in the Global South may face declining valuations of their sovereign-owned funds if the emphasis on fossil fuels deters investments in sustainable infrastructure, affecting fiscal stability.

Third, the administration’s ban on items with connected software from “countries of concern,” including China, marks a significant shift in U.S.-China technological relations. Reduced technological collaboration may deter U.S. venture capital and private equity investments in emerging markets tied to Chinese technology supply chains, slowing the growth of tech startups in countries like India and South Africa. The BRICS bloc might seek to strengthen intra-regional financial cooperation to offset these restrictions, with initiatives like cross-border payments in local currencies or BRICS development bank funding for tech projects gaining momentum. Influenced by U.S. policy signals, private investors may scale back commitments to climate-related investments in developing economies, widening the gap in climate finance. Countries like China and India may push harder for regional initiatives, such as climate resilience funds, to mobilize resources. However, limited fiscal space in Global South countries could constrain their ability to catalyze private-sector investment.

Fourth, emerging markets and BRICS nations often depend on access to international financial markets to fund development. Protectionist measures, combined with potential Federal Reserve tightening, could pose risks. Rising interest rates in the U.S. and a stronger dollar will increase debt-servicing costs for countries with significant external debt, intensifying the risk of sovereign debt crises, especially in lower-income Global South countries. Investor concerns over geopolitical tensions could reduce access to U.S. capital markets, pushing BRICS nations to issue bonds in local currencies or explore alternatives like green bonds in Asian and Middle Eastern markets.

And fifth, the retreat from multilateralism under the “America First” doctrine could accelerate BRICS nations’ efforts to reshape the global financial architecture. BRICS might enhance the role of the New Development Bank (NDB) and explore initiatives like a BRICS reserve currency to reduce reliance on the U.S. dollar. China’s advances in central bank digital currencies (CBDCs) and cross-border payment systems could gain traction as an alternative to the SWIFT network, potentially reducing the dollar’s dominance in trade finance.

The U.S. administration’s policies present a critical moment of reckoning for the Global South and BRICS nations. The financial channels — trade, energy, technology, debt, and geopolitical realignment — are all poised for significant disruption. However, amidst these challenges lies an opportunity to foster greater economic resilience and independence. The path forward will require strategic adaptability, bold structural reforms, and the creation of robust institutions to strengthen political and social stability — essential prerequisites for the Global South’s sustained growth and prosperity.

This period of uncertainty could catalyze reform and rebuilding efforts across the developing world, reducing reliance on advanced economies for financing, market access, and leniency in meeting global economic and financial standards. It opens the door for greater cooperation within the Global South or even for China and India to assume more prominent roles as economic and financial partners to other developing nations. By diversifying trade partnerships, fostering regional cooperation, and innovating in critical areas such as climate finance, digital payments, technology, space, and artificial intelligence, the Global South can mitigate the fallout of U.S. protectionism and carve out a more autonomous path forward.

Scenario-based planning and strategic foresight are essential for these nations to identify common ground, assess potential outcomes, and craft cohesive responses. The stakes are high, and a lack of coordinated action could leave them vulnerable to economic polarization. The U.S., too, must tread carefully. Overextending protectionist policies could provoke collective retaliation from the Global South — many of these nations are significant producers of primary goods essential to the U.S. economy and vital markets for American-made products.

The question remains: Will the nations of the Global South rise to this challenge, leveraging disruption as a springboard for transformation? Or will the ripple effects of “America First” policies leave them struggling to keep pace in an increasingly divided and competitive global economy? The answers will define not just their future, but the contours of the global economic order in the years to come.

Udaibir Das is a Distinguished Fellow at ORF America.