India needs capital, labour-intensive policies; use of AI can be balanced: CEA

Indian Express

29-05-2025

India needs to have policies that rely on capital-led growth as well as labour-intensive manufacturing given the need for competitiveness and productivity considerations going ahead, Chief Economic Adviser V Anantha Nageswaran on Thursday said. Citing a paper from a Berkeley-based artificial intelligence (AI) analyst, Nageswaran also said that there is a need to strike a balance between deployment of AI and labour with a need to recognise where to stop and not train the AI end-to-end in an industry.
'Going forward in our country while we understand that competitiveness and productivity considerations would require the increase in the number of GPUs, artificial intelligence engines being deployed etc., we are a country which has to create 8 million livelihoods at the minimum, every year, excluding agriculture. And therefore, we have to have policies that rely on capital-led growth and also policies…policy means government policies and also policies in the private sector that are able to focus on labour-intensive manufacturing as well,' he said while speaking at the CII Annual Business Summit 2025.
On AI and jobs, the CEA cited a paper to underline the need to strike a balance on the usage of AI. 'It's written by independent AI analyst based in Berkeley in California…he has said we should understand that building, super intelligent, AI systems and end-to-end AI agents is a technological and policy choice or it may add a business decision. You don't have to train the AI end-to-end, you can decide where you want to stop and where you want to deploy human labour as well. We must recognise that we gave a genuine choice about whether these systems are trained at all which is not any inevitable technological destiny and this decision should remain at the forefront of our policy or non-policy conversation,' the CEA said.
He also pointed out that India is at a low-income stage where it is facing the challenge of the growth in profitability exceeding not just capital formation, but the growth in compensation as well. '…and that is something that we can ill afford for the next 25 or 30 years,' he said.
This kind of challenge is generally faced by developed countries and not developing countries like India, he said.
'So, there has been a small gap in the rate of growth of profitability and the rate of growth of capital formation. If we have to achieve a sustained 6.5 per cent growth minimum in real terms and aim for a higher growth rate then this gap has to close,' he said.
Meeting India's capital needs would require steady growth in household incomes and savings and this can be possible when their income rises, he said. Nageswaran also underlined the importance of reducing the regulatory burden for better productivity of capital, but for this, trust has to be developed between the government and the private sector. 'In fact, a significant share of regulatory overreach is sometimes due to the non-reciprocity of trust on the part of the private sector. Therefore, from our perspective, the 'what' of deregulation is clear, but 'how' becomes more challenging, because sometimes deregulation leads to unintended consequences of abuse as well,' he said.
For achieving the goals of Viksit Bharat, he said, there is a need for a collaborative approach based on trust.
'We cannot achieve the kind of development that we hope to achieve in the next 25 years unless there is a collaborative approach, not just between Union and state governments, but also between governments around the country and the private sector,' he added. Trust, deregulation and reciprocation from the private sector are the keys to avoiding the middle-income trap, he said.
On the exchange rate, he said the fall in the rupee may not be too high, rather it should be in the range of 0.5-0.8 per cent going forward. 'Do not expect that the Indian rupee will necessarily be weakening as it did in the last 30 years, because, for various reasons. It is quite possible that we may have to deal with the challenge of living in an environment of a stronger currency rather than a weaker currency, because of international trends,' he said.