Shifts in labour market

India must prepare for greater AI adoption

Artificial intelligence (AI) is reshaping the nature of work and is raising questions about the future of employment, particularly in economies with large and growing workforces. The traditional pathway of moving workers from agriculture to manufacturing and services is becoming harder to sustain as production becomes more capital- and technology-intensive. As a mid-size information-technology (IT) company told this newspaper, the role of entry-level engineers is collapsing because of AI. In this regard, a study in the International Monetary Fund’s (IMF’s) latest “Regional Economic Outlook” for Asia and Pacific provides an early assessment of the shift. Drawing on 40 million online job postings across 19 Asian economies, it finds that employer demand in occupations more exposed to AI has fallen by nearly 10 per cent since the launch of ChatGPT in November 2022. While this decline has stabilised despite rapid improvement in AI capabilities, the report cautions against interpreting this as evidence that displacement risks have receded. The effects of reduced hiring are likely to unfold only over time.  

There are, however, emerging opportunities. Demand is increasing for workers with skills in prompt engineering, retrieval-augmented generation, and AI agent development. However, only about 6 per cent of firms in Asia seek explicit AI skills in their job postings. The study finds that hiring demand is growing faster at firms adopting AI, including for occupations highly exposed to the technology. This suggests that AI can complement workers by raising their productivity, even as it substitutes for certain tasks. The challenge is ensuring that the new opportunities are sufficiently broad to offset the reduction in conventional hiring. The implications differ across economies. Ageing countries such as Japan and South Korea could use AI to mitigate shrinking workforces. For India, Indonesia and the Philippines, which have expanding working-age populations, the challenge involves creating enough productive employment to harness their demographic dividends. These economies are now partly shielded because large numbers of workers remain in agriculture, a sector less exposed to AI. However, development requires a shift towards higher-productivity manufacturing and services, precisely where AI could make job creation more difficult. 

Notably, high unemployment among the youth, skill mismatches among graduates, and widespread underemployment already constrain employment prospects across emerging Asia. The IMF’s analysis of 65 million career histories finds that only about 5 per cent of workers move across occupations annually. This underlines why reskilling cannot be treated as an automatic solution to technological displacement. Workers need accessible training, institutional support, and opportunities to transition into occupations where demand is growing. India must, therefore, rethink its approach to employment generation and workforce preparedness. Education systems need to move beyond conventional qualifications towards adaptable, technology-oriented skills. Equally important is the direction of technological adoption. If AI-driven gains accrue disproportionately to a handful of firms, taxation and welfare policies may have to be revisited. For countries such as India, ensuring access to frontier AI technologies while building domestic capabilities in infrastructure, data and expertise will be equally important.