How manufacturing and services will adapt automation at a different pace

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Automation and ubiquitous technologisation is likely to shift jobs rather than wipe them out.

Automation is like the sword of Damocles hanging over the workforce. There have been several projections and predictions about how automation will wipe out jobs for human beings.

Yes, a lot of transformation is expected in the next 10 years due to ubiquitous technologisation. While it is true that many of today’s jobs may no longer exist, the existing jobs will be transformed or recreated as new.

Research based on World Bank data has predicted that the proportion of jobs threatened by automation in India is 69 per cent. Overall, as per estimates, some 33 crore workers will be affected by automation and most of it will be low-skilled workforce hired by the manufacturing sector.

Labour productivity is likely to be positively impacted by technology-enabled improvements in transport, communication and financial infrastructure. The growth of digital platforms can also create new opportunities to organise the informal sector – aside from the well- documented growth of taxi aggregators in India, over 270 new startups are catering to home services.

The agriculture and handicrafts sectors, two of the biggest employment generators, can benefit from digital platforms that aggregate demand and supply, enabling producers to directly access new consumers and markets.

In India, manufacturing wages for unskilled workers adjusted for productivity stand at an average of Rs 350 ($5.25), which is substantially below the cost of robots.

However , one needs to look at two core sectors – manufacturing, the traditional organised job sector, and services, the principal driver of recent economic growth— and how these two sectors will experience job displacement.

In services, it’s job substitution rather than job displacement, as new higher-value jobs are created within the same sectors. In manufacturing, where automation and technology could have created havoc, the contrary point of view is that manufacturing in India will be slow to adopt automation technologies, and there are valid reasons to back this statement.

WHY WILL THE MANUFACTURING SECTOR BE A SLOW ADOPTER OF AUTOMATION?

In India, manufacturing wages for unskilled workers adjusted for productivity stand at an average of Rs 350 ($5.25), which is substantially below the cost of robots. Besides, there are stringent labour laws for the dismissal of employees, which further reduces incentives for a widespread shift to robotics.

Industries, such as textile, paper, wood, and leather use materials that are typically ill-suited for manipulation by robots; the scope for full automation is thus low in the short run. In addition, wages in these sectors are fairly low. Unless low-cost technological breakthroughs occur, significant adoption will not take place soon.

Automation of certain tasks, however, could increase the value of other tasks over time. While the job of a bank teller may become obsolete, it will simultaneously create new opportunities for relationship managers. Similarly, the work of a hedge fund analyst will be replaced by an artificially intelligent machine, while simultaneously increasing the importance of a financial advisor.

However, one should remember that while adoption may be slow, it definitely happen. The declining cost of robots compared to labour could eventually lead to ‘re-shoring’ of large manufacturing plants to industrialised economies.

Within manufacturing, particularly automobile and electronic plants, exist casual and contractual employment, which may therefore be easier to replace.

Similarly, in heavy manufacturing industries such as basic metals, chemicals, equipment manufacturing, there is already a low labour-intensive subsector. Advanced automation technologies are likely to lead to further capital deepening and labour replacement in this sector.

Economists also argue that manufacturing-led economic growth still holds the best prospect for absorbing India’s low-skilled labour surplus.

Small enterprises that leverage technologies for 3D printing and digital platforms that
aggregate demand and supply can also create new employment opportunities within the manufacturing sector.

HOW WILL THE SERVICES SECTOR BENEFIT FROM AUTOMATION?

It is estimated that across the services sector, routine and manual tasks are most likely to be automated.

Financial services and information technology services have been at the forefront of India’s service-led growth, but their expansion has been primarily capital rather than labor intensive.

As this trend continues and firms invest in emerging technologies, entry and mid-level jobs could be at risk. For at least some workers, however, the end result is likely to be job substitution rather than job displacement, as new higher-value jobs are created within the same sectors.

E-commerce is expected to create 1.49 million jobs by 2021, with an annual growth rate of 36 per cent. For every job that is created by the e-commerce industry, further three to four jobs can get created in downstream industries. 50 per cent of logistics and warehousing jobs, for example, are currently linked to e-commerce platforms. Digital finance is also expected to create 21 million new jobs by 2025.

A recent study by HfS Research predicts that in the IT sector, India will lose 640,000 low-skilled positions by 2021. However, in place of these lost jobs, the sector is expected to generate 160,000 mid to high-skilled jobs, leading to the shrinkage of the IT sector by 14 per cent, by 2021.

Automation of certain tasks, however, could increase the value of other tasks over time. While the job of a bank teller may become obsolete, it will simultaneously create new opportunities for relationship managers. Similarly, the work of a hedge fund analyst will be replaced by an artificially intelligent machine, while simultaneously increasing the importance of a financial advisor.

New tasks and jobs created will hinge on increased complementarity between technology- based products and human abilities and skills.

Within the services, subsectors, such as hospitality and retail are likely to experience dramatic transformations as a result of automation, digitalisation, and the growing use of data analytics.

OTHER SECTORS

Education, healthcare, tourism, transport and storage enterprises have significant growth potential, creating 3 to 3.5 million jobs a year, in comparison to the 0.5 to 1 million jobs they currently create.

Construction will remain a significant job creator as the Government continues to develop the national infrastructure. The financial sector has traditionally been a high-growth sector, but not a large employer, and this trend is likely to continue.

Travel and tourism is also expected to become a high-growth industry by 2025.

IT sector, India will lose 640,000 low-skilled positions by 2021. However, in place of these lost jobs, the sector is expected to generate 160,000 mid to high-skilled jobs, leading to the shrinkage of the IT sector by 14 per cent, by 2021.

But the big one will come from e-commerce. The digital economy will continue to foster productivity and efficiency growth, creating new avenues for wealth and job creation.

E-commerce is expected to create 1.49 million jobs by 2021, with an annual growth rate of 36 per cent. For every job that is created by the e-commerce industry, further three to four jobs can get created in downstream industries. 50 per cent of logistics and warehousing jobs, for example, are currently linked to e-commerce platforms. Digital finance is also expected to create 21 million new jobs by 2025.

(Based on a research report by Quest Alliance, in partnership with Tandem Research and supported by Microsoft Philanthropies)

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