AI versus Job losses: Eco Survey talks about tax on profits generated from replacement of labour with tech

NEW DELHI: Mindful of any potential largescale job losses due to implementation of AI across value chains in the corporate sector, the Economic Survey advocated that India Inc work out a “longer horizon” and practice “sensitivity” while engaging in massive technological upgrades, or else be prepared to face a “taxation of profits generated from the replacement of labour with technology”.
“The corporate sector has to display a high degree of social responsibility. Although the impact of AI on labour will be felt across the world, the problem is magnified for India, given its size and its relatively low per capita income.If companies do not optimise the introduction of AI over a longer horizon and do not handle it with sensitivity, the demand for policy intervention and the demand on fiscal resources to compensate will be irresistible. The state, in turn, has to resort to taxation of profits generated from the replacement of labour with technology to mobilise those resources, “ the Survey – tabled by FM Nirmala Sitharaman in the Parliament, said, citing similar suggestions in an IMF paper on the subject. “It will leave everyone worse off and the country’s growth potential will suffer, as a result.”
In line with the focus on AI across the world, the survey dedicated a full chapter to the subject, talking not just about potential dangers to jobs, especially in middle- and lower-quartiles, but also pointing to the potential benefits to output as well as quality of services and production. “Protracted labour displacement is something that a labour-surplus country like India cannot afford.”
It said India is a majorly services driven economy, with a significant share of the IT workforce employed in low value-added services. “Such jobs are the most susceptible to automation, as firms in a bid to cut costs may substitute labour for technology… India is also a consumption-based economy, thus the fall in consumption that can result from the displacement of its workforce is bound to have macroeconomic implications. If the worst-case projections materialise, this could have the potential to set the country’s economic growth trajectory off course.”
The Survey highlighted that expectations point toward a trend where AI begins outperforming humans in critical decision-making processes in areas like healthcare, criminal justice, education, business and financial services, among others. “… This has led to calls for a more responsible approach to AI adoption, especially in a country like India where employment numbers make the magnitude of impact, something worth paying attention to… Anxieties about the effects of AI remain high in India as well, considering our country is a services-led economy.”
However, it also added that being a services-driven economy, AI will also help in enhancing the productivity of the country’s workforce. “Further, the younger population makes a rich talent pool available for capitalising on emerging technologies.”
It spoke about fostering collaboration between policymakers, the private sector, and academia, to align AI-driven innovation with societal goals. “Ensuring inclusivity and sustainability in this transition is key to maximizing benefits while minimizing disruptions. With robust institutional frameworks and strategic planning, AI can serve not as a crisis but as a catalyst for equitable economic transformation, positioning India to thrive in an increasingly automated world.”
The Survey suggested creation of robust enabling institutions to help transition workers to medium- and high-skilled jobs, where AI can augment their efforts rather than replace them.