The World Bank has raised its India growth forecast for the current fiscal year by 2 percentage points to 6.5 percent, while downgrading it for the next fiscal to 6.3 percent. The one big risk for India is that the global economy is weaker than we’re currently assuming, says Franziska Ohnsorge, World Bank’s chief economist for South Asia. Ohnsorge talks about how artificial intelligence (AI) and trade agreements can transform India’s growth prospects and why diversifying trade deals is the right thing to do. Edited excerpts.
Q. How bullish are you about India's growth prospects, given the tariff uncertainty?India remains the fastest-growing major economy; there's no question that it has the growth momentum to outpace all the other major economies. That’s the short-term outlook. For the long-term outlook, if you add to this the potential of AI and opening of trade [through trade deals], it could give another boost to both private investment and employment, and could really transform growth prospects.
Q. What will be AI’s impact on jobs in India?The first factoid is that relative to other emerging markets and developing economies, India will be less affected by AI adoption, simply because you have such a large agricultural sector. About 22 percent of the workforce will be affected by AI, which is less than other emerging markets. When you split that 22 percent, a much larger group, 15.6 percent, is likely to benefit from productivity gains because they have skills that are complementary to AI. So, think of a dentist. You will always need dentists, but AI can make them much more productive. Think of a CEO, you will always need someone who manages things.
About 6.4 percent of the workforce is substitutable by AI and their jobs will be at risk. But this number for other emerging markets is 15 percent. So, in principle, India is much better placed than other emerging markets to benefit from AI.
Q. Will that increase inequality?It doesn’t have to. Both these types of jobs are better than the average job. Some 23 percent of the workforce is exposed to AI in South Asia; that is 42 percent of the wage bill. So, these 23 percent are the better jobs. The lower-income jobs are much less exposed to AI.
Q. What is India doing right in AI?It’s remarkable how well-prepared India is for AI. Of all the emerging markets, it is among the most prepared. Oxford Insights has this government AI readiness index where India is well above the average for emerging markets, it’s almost at advanced economy level. So, it has put in place the infrastructure, both regulatory and physical, and then there’s the focus on skilling. All of this puts India at an advantage.
Q. What more can policymakers and universities do to be prepared for the AI transition? Should the focus be on reskilling or create new kinds of jobs?That’ll happen organically. Technology changing the shape of jobs is one thing, the other could well be trade policy. If these deals came through, you would see changes there again. And it's inevitable that workers will have to move—to new jobs, out of old jobs, to growing industries out of the ones that are shrinking, to different locations. That’s where the government can help.
The less costly you make it for people to switch jobs, the more the whole economy benefits because the more people will move around, the larger the gains. Doing that takes much more than just labour market reforms or skilling.
The other thing is connectivity. And there, again, India is very well placed. Its physical infrastructure and even the digital infrastructure is far ahead of many other emerging markets and developing economies. A Deregulation Commission, for example, is exactly what’s needed to help firms grow and create jobs so that people can move out of AI-affected jobs into new jobs.
Q. How much of India’s digital public infrastructure (Aadhaar, UPI, etc) is built into AI preparedness? What’s the impact on the private sector?Aadhaar-plus-UPI is probably one reason that the AI readiness index for India is so high. That is a true achievement, and makes it so much easier to adopt AI. The private sector is already being reshaped [in terms of hiring], independent of what policy is doing right now.
Q. Should India focus more on trade deals with Asia versus the West?What the government is doing now is the right thing to do: Diversify. Apparently, there are negotiations going on with the European Union [EU] and Canada, which is the West, with Australia (east). India stands out among emerging markets and developing economies in the diversification of its exports, and not a random diversification, but diversification across the geopolitical spectrum. If the government could build on that by engaging with a wide range of countries, that would help. Also, an agreement with a major economic block, whether it's East or West, would help.
Q. Female labour force participation remains low in India. What policy interventions would you suggest to raise it?We did a report last October and the bottom line was the ‘why’ and ‘how to fix it’. We split the ‘why’ into three reasons: Supply, demand and norms. On norms, conservative gender norms are a big barrier in South Asia. On supply, our indicator shows that one of the pockets where India scores exceptionally weak is safe transport. And then on labour demand, around the world there are two industries that disproportionately employ women, services and exports. And both are a smaller share of employment across South Asia than in the average emerging market.
So, there are three headwinds, which bring me to how to fix it. No individual measure will really make a difference. You need to have supply, you need to make it easier for women to work, with safe transport, child care, the usual things.
On norms, Erik Berglof [chief economist of the Asian Infrastructure Investment Bank] made this speech, where he cited a piece by Claudia Goldin [American economist and winner of the 2023 Nobel Prize for economics]: Apparently, she said there is a strong correlation between high birthrates, which is probably correlated with female labour force participation, and the number of hours that husbands spend on housework. So that is norm.
But what you also need is labour demand. You just need more jobs for everyone—women and men. It needs a lot of things to go right to get millions of women to join the labour force.
Q. What is the single biggest risk to India's growth over, say, two years?The big risk for all South Asian countries, including India, is just that the global economy is weaker than we’re currently assuming, that there is a bigger slump in the major economies. India is more closed than others and is more insulated to a global slump, but it will be affected if the global economy slows faster than we currently assume.
Q. And over the long term?I’m not sure I can point to a long-term risk because India has a lot of pros. There’s demography that helps, it’s much better placed than the other countries to benefit from AI, and if it does do these trade agreements, it could spruce up manufacturing. But the thing that jumps out is the opportunities, not the risks.
First Published: Oct 07, 2025, 15:04
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