AI policy must take into account democratic bargain

India's AI development model is more susceptible to disruption than those of advanced economies due to its heavy reliance on IT services and entry-level cognitive work. This sector not only fuels India's middle class but also supports employment in other industries. Furthermore, India's largest demographic advantage - its youthful population - presents unique challenges.

A technology that enables firms to expand with fewer workers could exacerbate India's labor shortages and make it difficult to integrate young people into the workforce. Unlike advanced economies, India lacks redistributive mechanisms such as universal basic income or public equity stakes in frontier AI companies. The tasks that AI can currently automate are the same tasks that help inexperienced workers gain experience.

If firms replace junior staff with AI and rely on senior professionals for oversight, they may diminish the pipeline of future professionals. Additionally, a shift towards AI-driven exports may not lead to increased employment. Recent analysis shows that sectoral growth is diverging from workers' outcomes, with software exports growing while employment and real earnings have declined.

AI is likely to result in a rise in lower-quality work, with unemployment already higher among young graduates compared to the general youth population. However, AI can also expand access to scarce expertise, bolster small firms, and enhance public services. To ensure that these benefits are maximized, a national AI and Work Observatory should be established to monitor the transition in recruitment, wages, retention, and progression.

Sectoral apprenticeship arrangements should provide supervised experience using AI, complementing generic AI certificates with domain knowledge and professional judgment. Existing workers should have meaningful human oversight of automated decision-making, and portable social protection must accompany this transition. The process must include democratic representation, with a dedicated parliamentary committee examining AI's impact on work and regularly hearing from young people, workers, small firms, and state governments.

These measures should be part of a broader employment strategy to create demand for labor itself. India must address its depressed wages, which constrain domestic consumption and limit firms' ability to grow and hire. By expanding access to productive work and upward mobility, India can ensure that the benefits of AI are widely shared.