Bernstein, in an open letter to Prime Minister Narendra Modi, said that India’s 10–15 million IT and BPO workforce is at risk from AI-led automation, while manufacturing is not scaling fast enough to absorb displaced labour.
The global brokerage highlighted that India has made progress in terms of macro stability, capital expenditure push, and GDP growth, but warned that the country risks under-delivering on its potential.
Bernstein’s open letter to PM
They warned that India may risk losing the gains it has made in recent years if the country doesn’t accelerate structural reforms, particularly in jobs, manufacturing and innovation.
“The last six years demonstrate what India can do when policy is aligned… But they also carry a risk: the temptation to extrapolate recent success and underplay how much further there is to go.”
The note comes at a time when the global economy is being reshaped by artificial intelligence (AI), shifting supply chains, and rising protectionism.
Bernstein warns: AI disruption to India’s 10–15 million IT workforce
Bernstein cautioned that India risks falling behind in artificial intelligence (AI) by focusing on data centres instead of building foundational technologies. “If Indian data continues to be used to train global models without building domestic capability, India risks becoming a permanent consumer in the AI economy,” it said.
The brokerage added that a major risk to India’s employment engine comes from the country’s IT services and BPO sectors, which employ 10–15 million people but are facing growing disruption from AI.
“For two decades, India’s services engine has been powered by a large, reasonably priced, English-speaking talent pool working in IT services, GCCs and BPOs. That 10-15 million strong workforce has anchored the aspirational middle class—buying homes, taking flights, driving consumption. Gen AI now challenges that template,” Bernstein said in its letters to PM.
“The risk is that India becomes a user of these technologies without capturing a commensurate share of the upside.” Bernstein also questioned whether manufacturing can absorb displaced labour at scale, noting that private capital expenditure remains selective and the much-touted “China+1” shift has been slow to translate into jobs.
Manufacturing not ready to absorb displaced labour: Bernstein
Manufacturing remains stuck at about 16–17% of GDP despite policy initiatives, with shallow supply chains and high import dependence in sectors such as electric vehicle batteries. “India cannot continue to enter industries decades after global leaders and expect different outcomes,” the note said.
Data centre boom not enough, Bernstein warns India risks becoming ‘AI consumer’
Bernstein also warned that India faces a long-term risk of dependence on artificial intelligence as it lacks ownership of frontier AI models. The brokerage said that focusing on building data centres alone will not create meaningful value, as these investments are largely import-intensive and much of the control remains with global players. “If Indian data continues to be used to train global models without building domestic capability, India risks becoming a permanent consumer in the AI economy,” it said.
It added that India risks supplying data without owning the underlying technology or capturing a fair share of the value. To address this, Bernstein called for a stronger policy push to develop domestic AI models, invest in compute infrastructure, and ensure that data governance frameworks prioritise national value creation. It also suggested that global AI firms operating in India should be encouraged to share value locally, including through listings.
Bernstein flags agriculture as key drag on India’s growth
The letter highlighted agriculture as a key drag, with roughly 42-45% of India’s workforce contributing only about 15-16% of GDP. It called for renewed reforms despite the rollback of farm laws, alongside increased irrigation and reduced reliance on subsidies.
“These are not solutions; they are recurring responses to a system that has not been reformed,” Bernstein said, referring to loan waivers and input subsidies.