This report is from this week's CNBC 'Inside India' newsletter, delivering timely and insightful news and market commentary on emerging powers and the big companies behind their phenomenal rise. Masu. Like what you see?You can subscribe here.
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It was a story of two European companies. But it could foreshadow India's growth story.
Shares in French outsourcing giant Teleperformance fell nearly 20% earlier this year when fintech company Claruna announced it was using artificial intelligence to provide customer service.
The Swedish company revealed that its AI chatbots replaced the equivalent of 700 full-time customer service jobs, resulting in net savings of $40 million. This was enough to scare investors into dumping Teleperformance stock over fears that AI could disrupt the company's lucrative call center business in the future.
The Paris-listed company has a market capitalization of nearly 6 billion euros ($6.4 billion) and employs 500,000 people worldwide, with operations including telemarketing, customer relationship management and content moderation. However, all of them are at risk of being destroyed by AI. Since ChatGPT's launch, the company's stock price has plummeted by 55%, while the French stock market has risen by 24%.
Is Teleperformance's stock price crash a canary in the coalmine for what's likely to happen to India due to AI? The CEO of India's Tata Consultancy Services thinks so.
KK Krithivasan recently told the Financial Times that AI is likely to resolve customer complaints before people even call a company's helpline, eliminating most call center jobs in the process.
The head of TCS, which employs mostly software developers among its roughly 600,000 employees worldwide, said he expects this will likely happen “within a year or so.”
Kritivasan said job losses due to AI have not materialized yet, but some are already counting the impact AI could have on the labor market.
Researchers from the World Bank, International Monetary Fund, and Oxford University found that demand for AI skills is undermining labor demand for non-AI roles in India. This means that for every job created that requires AI expertise, jobs in other fields are reduced.
The researchers found that “AI adoption is initially matched by a small increase in general employment, but the demand for non-AI workers decreases in subsequent years, making the overall impact significantly negative.” ” he said.
However, automation in the business process outsourcing (BPO) sector could quickly become a political issue due to its significant position in the Indian economy.
Despite employing only 0.4% of total employment, the sector is responsible for 6.5% of India's GDP and 25% of its exports, according to Capital Economics. It also employs many of India's youth, who currently account for more than 80% of India's total unemployed population.
Prime Minister Narendra Modi, who is fighting for a third term in the ongoing general election, is already under pressure from opposition parties for not doing enough to create jobs. If he is re-elected, it looks like AI will make his job even harder.
But not everything is doom and gloom.
Even under the absolute worst-case scenario (and highly unlikely), where the BPO sector is completely destroyed, the damage would be a fraction of the annual GDP growth rate, said Shiran Shah, deputy chief emerging markets economist at Capital Economics. We estimate it to be only 0.8 percentage points.
Indeed, each job loss is followed by a period of confusion and misery, not only for the person but often for their dependents as well. However, given the macro forces at play, this is likely to be a blow to India's growth trajectory.
For example, investment bank Nomura predicts that India's economy will grow by an average of 7% over the next five years on the back of growth in manufacturing, a sector that is yet to see a full-scale AI disruption.
India also appears to be focusing on job creation in the high-tech sector, with some recent success.
American semiconductor giant Qualcomm is already designing semiconductors in Chennai, tapping the country's talented engineers. India is also inviting foreign chip makers, including Taiwan's Power Chip Semiconductor Manufacturer, to set up operations in the country.
India has the potential to become a net beneficiary of artificial intelligence as well as create jobs that are unlikely to be quickly destroyed by AI.
Due to its geography, India is one of the most vulnerable countries in the world when it comes to climate change.
India's Meteorological Department said earlier this year that it plans to use AI to improve weather forecasts and predict major events. It is expected to have a positive impact on the agriculture sector, which employs around 45% of India's workforce.
Rapid improvements in India's financial infrastructure (UPI payments network) are now giving birth to several new technology companies that leverage AI to reduce financial costs.
India is unlikely to be alone in facing the challenges posed by AI. Goldman Sachs last year estimated that one in four jobs in the U.S. and Europe were also at risk of disruption.
This will be a challenge for India, but it is not a problem unique to India.
Election updates
News editor Vinay Dwivedi speaks with farmers who have been at the forefront of protests against the government on the ground in India in recent months. Approximately 250 million people are engaged in agriculture in India.
Their main demand is a guaranteed minimum support price across agricultural products to counter rising production costs. But the government shows no signs of capitulating, despite the risk of losing support from this huge peasant base at the voting booth.
Economists, on the other hand, argue that the farmers' demands are not economically viable.
“These demands will not only have a negative impact on the agriculture sector but will also hit the economy hard. The entire economy will be disrupted,” said Ashok Gulati, an economist and former chairman of the Agricultural Costs and Prices Commission. he says. He said.
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Nomura predicts that India's economy could grow by an average of 7% over the next five years. The new forecast by the Japanese bank relies on continuity of policy after the election results, regardless of who wins. This forecast is much higher than Nomura's growth outlook for China (3.9%), Singapore (2.5%) and South Korea (1.8%) for the same period.
America's fastest growing sport is looking to India for its next growth. The United Pickleball Association and Global Sports last week announced a deal to bring the PPA Tour and Major League Pickleball to India. For those who don't know, pickleball is a racquet sport that combines elements of tennis, table tennis, and badminton.
The White House commented on India's alleged involvement in the assassination plot. A Washington Post report claimed that Indian intelligence was involved in assassination plots in Canada and the United States. India's Ministry of External Affairs said the report made “unfounded and baseless assumptions about critical issues,” White House Press Secretary Karine Jean-Pierre told reporters. “We will continue to voice our concerns.”
What happened in the market?
Indian stock market indices Sensex and Nifty 50 have had another strong week, rising 1% and 1.2% respectively. The benchmark is up 3.28% and 4.22% since the beginning of the year.
India's 10-year government bond yield has been range-bound, having been in the 7.15-7.20 range last week.
The Indian rupee weakened against the US dollar, even as markets priced in a smaller US interest rate cut this year and global oil prices fell slightly. However, some markets interpreted the Fed's chairman, Jerome Powell, as being less hawkish than expected after he downplayed the possibility of rate hikes at a press conference on Wednesday.
This week on CNBC TV, we featured Raghuram Rajan, former Reserve Bank of India Governor and professor of finance at the University of Chicago Booth School of Business. He said India's 8.5% growth rate was somewhat “false”, but added that “even 6-6.5%” is a pretty good number for the country.
Meanwhile, Ashish Jain, chief financial officer of Indian food processing company KRBL, spoke about the country's agricultural downturn due to bad weather.
CNBC's Ayushi Jindal also reported from inside Qualcomm's new design center in Chennai. Chips are already being designed there.
What will happen next week?
Apart from the elections, Indegene, which provides digital services to the life sciences industry, is set to enter India's primary market. The offering period is May 6-8 and the shares are expected to be listed on the BSE and NSE on May 13.