AI Will Disrupt India's Services Sector But Won't Derail Growth, Former Central Bank Chief Says
India's massive services sector faces significant disruption from artificial intelligence, but the technology won't derail the country's economic trajectory, according to Raghuram Rajan, the former governor of the Reserve Bank of India.
Rajan's comments, made in an interview with Bloomberg on February 27, come as India's finance leaders grapple with how AI will reshape the country's economic model. India's services sector—which includes IT outsourcing, business process management, and financial services—has been the engine of the country's growth for decades, employing millions and generating substantial foreign exchange. Now that engine faces its first serious technological challenge since the internet boom.
The timing is notable. India has positioned itself as a global back office, with companies from Infosys to Tata Consultancy Services building empires on the premise that India's educated, English-speaking workforce can handle everything from software development to customer service at a fraction of Western costs. AI threatens that arbitrage directly—not by moving work back to expensive markets, but by eliminating the work entirely.
Here's the thing everyone's missing: Rajan isn't saying AI won't hurt. He's saying it won't derail. That's a crucial distinction for CFOs with India exposure. Disruption means pain, restructuring, and margin pressure. Derailment means existential crisis. Rajan is drawing a line between the two.
The question for finance leaders is what "disrupt but not derail" actually means in practice. (Translation: how many jobs disappear, how fast, and what replaces them?) Rajan didn't provide specifics in the interview, but the framework matters. If India's services sector can absorb AI shocks without collapsing—if it can retool rather than implode—that has implications for everything from outsourcing contracts to emerging market exposure.
Consider the hypothetical conversation happening right now in every multinational finance department:
CFO: "Our India-based shared services center processes 50,000 invoices a month with 200 people. AI could do that with 20."
India Operations Lead: "Yes, but we'll redeploy those people to higher-value work—analytics, exception handling, vendor relationship management."
CFO: "Will we, though? Or will we just... not replace them when they leave?"
Rajan's argument, essentially, is that India will find an answer to that question that doesn't end with mass unemployment and economic crisis. Whether he's right depends on factors he didn't elaborate on in the interview: retraining capacity, regulatory adaptation, and whether India can move up the value chain faster than AI moves down it.
For CFOs, the practical implication is this: don't panic about India exposure, but don't ignore it either. The services sector that exists today won't be the services sector that exists in five years. Contracts will need renegotiation. Headcount models will need revision. The question isn't whether to adjust—it's how quickly and how much.
What's worth watching: whether India's government moves to protect services jobs through regulation (which would slow AI adoption but preserve employment) or embraces disruption and bets on retraining (which would accelerate change but risk social instability). Rajan's confidence suggests he believes India can thread that needle. CFOs with significant India operations should hope he's right—and plan for the possibility he's not.
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