Automation is deindustrialising India, which is not sufficiently innovative to face up to the threats posed by artificial intelligence, nor equipped to build on its mainstay capabilities in agriculture and other traditional industries.Prime Minister Narendra Modi alluded, yet again, to the creation of jobs in his Independence Day speech, an economic priority that he has underscored on almost every occasion, both in speeches and at events over the past two years.
“As the scope of work expands, the possibilities of employment generation also increase… today, we have stressed in that direction,” he claimed, pointing to India’s credentials as the largest manufacturer of vehicles, leading exporter of software and home to the world’s most ambitious public sanitation programme that has purportedly led to the construction of two crore toilets under his regime.
All of this, coupled with investments in new factories that the prime minister seemed to suggest in his speech, has led to employment generation and new job opportunities for India’s 800 million who are under the age of 35.
A granular look at employment trends, however, shows that job creation dropped significantly during Modi’s reign – down from 4.2 lakh incremental jobs created during January-December 2014 to 1.35 lakh in the following year across eight core sectors. Also, a structural shift in India’s labour markets – an increased emphasis on automation across industries and the inability of policy makers in gauging the looming threats posed by mega tech trends – has made an already monumental task of providing jobs to 12 million new market entrants every year over the next two decades, into an exceptionally onerous one for the NDA government.
The fact that India lacks the coping mechanisms to deal with large-scale tech disruptions to its labour markets has been put on show by its IT services sector.
The sector has been the solitary engine for job growth in the past two decades – when India was transformed from a largely agrarian nation to a services-driven economy, bypassing the traditional manufacturing-led industrial expansion that could absorb millions of new graduates into the workforce.
However, as machines and robots now undertake the simple, manual tasks that lakhs of engineering graduates traditionally performed, India’s outsourcing job boom has come under threat. Faced with a scenario of rapidly shrinking employment opportunities in the IT sector, it is for the first time since 2009 that campus recruitment for engineering graduates is expected to decline – according to the IT industry body NASSCOM, which predicted a 20% drop in its most recent outlook.
India’s IT companies hire around 2-2.5 lakh of the roughly 14-15 lakh engineering graduates every year. But, as delivery functions are getting automated, a minimum of 10% of the incremental jobs will “disappear”, Mohandas Pai, the former CFO and HR head at Infosys, recently told PTI.
A US-based research firm, HfS Research, has calculated the damage at 6.4 lakh “low-skilled” IT jobs over the next 5 years.
“We’ve deployed an element of automation across all our new projects in the last one year,” said L Ravichandran, the president and chief operating officer of Tech Mahindra, India’s 5th largest IT company that launched its robotics automation and artificial intelligence (AI) framework, AQT, last year. “Not only have we been able to see improved process efficiencies, but also reduce manual errors. [It] saves delivery time, while skilling our hires to do more value tasks”.
Such benefits have, however, come as a direct cost to job creation, a fact that has openly been acknowledged by India’s tech giants. Tech Mahindra, in fact, has an index that tracks the decrease in manpower needed per project, while Wipro, in an analyst conference call last year, is openly known to have admitted to the fact that automation, through its AI platform Holmes, could reduce its staff count by at least a third.
TCS and Infosys, the other IT bellwethers, who also use their own AI platforms – Ignio and Mana – are rapidly adapting to the new environment to make their companies more productive and increase their revenue per employee.
The effects of this are increasingly becoming more noticeable than ever. India’s top five IT vendors, including Cognizant, reported a 24% year-on-year decline in hiring, as per a recent analysis by Centrum Broking.
There is also a question mark over whether India’s economy has the replacement capacity to take up this pool, barring, as Pai quipped, a driving job with taxi aggregators such as Ola and Uber which have seen a migration of software engineers to them in the recent times.
“There are other areas of absorption in the economy, but it is true that the employment elasticity of growth in IT companies has definitely come down,” said Manish Sabharwal, Chairman and Co-Founder of TeamLease Services, a leading staffing company. “IT companies can clock higher growth numbers with far fewer numbers of people today”.
Man vs machine
This is a great cause of worry for the government. Even more so given that across India’s manufacturing spectrum as well – which is a new thrust area for the Modi government with initiatives like ‘Make in India’ designed specifically to give the sector a fillip – the jobs pledge is sounding increasingly like a day-time reverie.
A trip to Ludhiana’s famed knitwear and textiles cluster points to the anxieties that economists have expressed about modern machinery replacing human toil. At Jyoti Textile Mills – a lungi manufacturing unit with 60 whirring shuttle looms – four new upgraded machines will replace the job of 12 looms and improve production by three times in the coming years.
“Erratic labour conditions and changing trends, which demand a better finish is forcing us to automate,” said Kshitij Ghai, the proprietor of this small scale enterprise.
These ground realities are borne out by wider studies like the one jointly conducted by industry body Texprocil and Ernst & Young, which suggests that even as the market size of textiles grows by 40% to $142 billion in the next five years, industrial automation is likely to hit job creation significantly. The new textiles policy targets one crore new jobs, but the study estimates that realistically, only 29 lakh jobs are likely to be created in the next five years.
Questions are also being raised about how significantly the ‘Make in India’ bogie will contribute to the targeted job growth, which is one of its key stated goals.
While foreign direct investment in India surged to $62 billion between October 2014 and May 2016, a chunk of it has gone to the services sector and what has come into manufacturing under ‘Make in India’ is unlikely to spur job figures, reckon experts.
Reports show how robots have gradually begun taking over functions across an array of automobile plants that are owned by global players such as Volkswagen, Ford and Hyundai in India. There is no reason to believe that the new FDI money that comes in is any less likely to sacrifice the cost and product efficiencies of industrial automation – a global trend – for the altruistic purpose of mass job creation.
Global practices of greenfield investors, in fact, don’t do much to instil confidence on this front. The Taiwanese contract electronics manufacturer, Foxconn, which has signed a pact to invest $5 billion over five years in a semi-conductor facility in Maharashtra – which is amongst the largest single FDI flow into the country – has said that it expects to generate employment for about 50,000 people in the country. But across its other global factories, the Apple and Samsung supplier has replaced 60,000 factory workers with robots in May of this year. It remains to be seen whether things will pan out as planned for Foxconn’s hiring plans back home, particularly given how little has changed in terms of labour reform and the other byzantine regulations that guide large scale industries.
An existential crisis
Modi inherited from the previous government a sorry legacy of what has come to be known as a decade of “jobless growth”. But clearly, as the last two years have shown, his problems have only been compounded by these new existential threats that weren’t entirely unforeseen, but are being rather hugely underestimated as unrealistic job promises are being doled out.
The government is now faced with a double whammy of a demand destruction in the developed West (which has affected job creating export sectors) met with the rise of machines that is causing a labour market destruction across the economy. It is prematurely deindustrialising a country that is neither sufficiently innovative to face up to the threats posed by artificial intelligence, nor equipped with the strength and willingness to build on its mainstay capabilities in agriculture and other traditional industries.
This has great social and political implications, as Aseem Shrivastava, a Delhi-based economist explains in the Economic & Political Weekly, “the drying up of jobs in the mainstream corporate-led economy means there is suddenly far greater demand for government positions and for caste-based reservations for such jobs.”
It also puts into question the very premise of the argument posited by successive liberal governments and policymakers that, with development, millions of Indians will migrate from occupations such as agriculture to more “productive” and “lucrative” ones in the industrial and services sector.
“This promise is far from being met. However, it exists as a real fantasy in the minds of millions of young Indians… The flood tide of support from urban and urbanising youth, which was crucial in bringing Narendra Modi and the [BJP] to office, is more than likely to turn against him in 2019, unless he achieves the impossible and in fact delivers the promised jobs,” warns Shrivastava. “The data is not on his side.”