AI in manufacturing can achieve import substitution & export promotion

Dr Badri Narayanan Gopalakrishnan, Fellow, NITI Aayog and Member, Committee for Advanced Trade Research, speaks in detail about the manner in which AI is transforming manufacturing and international trade. He also discusses how AI affects manufacturing competitiveness, labour demand, trade deficit and the global thrust towards self-reliance.

Although India is in the very early stages of deploying AI in manufacturing, Dr Gopalakrishnan firmly believes that it has the potential to catch up very quickly through a collaborative approach between policy, regulation, industry and academia. 

IBT: What are the major transformations, which AI is expected to usher into the manufacturing sector by the end of this decade?

Dr Badri Narayanan Gopalakrishnan: AI unleashes a plethora of capabilities that we did not have access to earlier, particularly in manufacturing. A case in point is predictive maintenance. Currently, companies implement schedules for machineries’ maintenance, and people come to monitor them from time to time. An AI-enabled system can optimize and automate the maintenance process, so that it is scheduled for exactly the time when it is needed. In this manner, companies can avoid the risk of early wear and tear and resource wastage. AI can optimize production processes, thereby cutting down costs.

It can automate both strategic and operational decision making, whether it pertains to manufacturing, maintenance or a plethora of other activities. Any manufacturing process is bound to generate a lot of data. AI systems learn from this data, identify the defects in different parts and make interventions. AI is not just a tool to forecast and understand what could happen and what may happen. It can also answer why something is going to happen.

Given the challenges we face due to fragmented global value chains, one can also deploy AI systems to make decisions on which part of supply chain to invest in. A company can also make decisions on which factory to set up in which country using AI tools. So far, simple automation & robotics were replacing jobs that were routine in nature. But AI can now even replace jobs that require intelligence and knowledge. At a macro level, we are looking at a very lean workforce in manufacturing and growth of a more high end workforce in AI development and deployment. Even supervision level jobs will be limited. 

IBT: What implications does this have for employment growth in manufacturing sector? 

Dr Badri Narayanan Gopalakrishnan: There is widespread fear that AI will replace jobs and severely disrupt the employment market. But in my view, it will not have a dominant effect, though there will be significant changes. Firstly. we can expect fewer blue collar jobs and more white collar jobs in the manufacturing sector. But for the former, options have opened elsewhere.

When you looking at data of 1980’s, 1990’s or early 2000’s, there was hardly any kind of businesses focusing on different types of entertainment. The predominant mode was movies. But today, many options are available – from restaurants to shopping. When a lot of people got into lucrative IT jobs and other sectors also expanded, people started getting more disposable income into their hands. The entertainment options they explore have led to a boom in various options, and these services sector jobs are blue collar-oriented.

In today’s society, you can have people making a living even without being attached or having a deep sense of satisfaction and knowledge of what they are doing. But in future if you are a server, you are going to become an intelligent server. For example, if you work in 5-star hotels, you will need to have good conversation skills. People should have some kind of attachment and passion to what they are doing, which is where their social and cultural sensitivities need to evolve. Still there will be a lot of people who do not fit the bill and will be left out of such opportunities. 

IBT: How India should plans its progression towards becoming a major manufacturing hub in the AI era?

Dr Badri Narayanan Gopalakrishnan: India has a huge advantage in IT, and should actually try to pivot towards becoming an AI hub. But we still have a lot of catching up to do, because AI is very R&D intensive. Government, private sector and educational institutions have to invest significant energies and investments in R&D pertaining to AI. India is undertaking a lot of discussions on data, AI, cyber policies, etc. It should definitely have a set of regulations that can dictate the rules of the game, but they shouldn’t be too claustrophobic for industries looking to flourish with innovation. In AI, R&D and innovation are the key, so regulation should foster that and money should be poured into it. Countries like China, Russia, US, etc are spending far greater amounts in R&D for AI and India should try to match those numbers. 

India also has to maintain its focus on the IT sector, where AI is an integral part. Currently, we are a hub for implementation of technology. And we have to continue doing that, as we cannot invent everything, So we need to take some of the inventions from abroad and commercialize them, as India has the advantage of low cost and high quality human resources who can manage these things.

We have to keep deepening the comparative advantage of human resources in AI. Also, when you combine that with R&D, you become a full-fledged AI hub. Such a hub can develop solutions for manufacturing. And that is the best way to come back on the global map for manufacturing today, a place we lost to China. India can reclaim that position by deploying various AI technologies to reduce cost and increase efficiencies in the manufacturing process. 

For this, India needs a combination of research, innovation, funding and friendly regulation (for both investment and R&D). Human resource development is a very important part of this journey, and people need to be trained on AI deployment. When I talk to some auto companies, many of their employees are operating in Industry 2.0-based systems. So how do we upgrade them to Industry 4.0? It is not just about bringing new technologies, but also how do you train the workforce to be up to speed? The role of the government is very important here in order to take advantage of the academic research available, and also ensure further improvement through international partnerships, collaboration, etc.  

IBT: How AI is going to play a role considering that more and more countries are pursuing self-reliance in manufacturing? 

Dr Badri Narayanan Gopalakrishnan: AI can play a major role in the Aatmanirbhar Bharat mission. A report by one the insurance companies has concluded that if countries deploy 3D printing on a large scale, they can manufacture many things. With such a transformation in the manufacturing ecosytem, you may actually see a fall in global trade by around 30%. You will no longer need cheap labour, for which countries relied on China earlier, and on Vietnam, Bangladesh and Africa at present (even India to some extent). I believe AI will also catalyse this transformation on a similar scale.

India has also been facing a demand-supply challenge in its labour supply. Low skilled cheap labour is not India’s advantage anymore. So in this context, AI can play a major role. 

The self-reliance aspect is an advantage in some ways, if that is a national goal. But if every country wants to be self- reliant, then we are going to suffer in terms of exports. However, the big positive is that we can heavily substitute imports without raising tariffs. Moreover, all countries may not be similarly competitive in achieving self reliance through AI and can be potential export markets for us.

Practically, policy makers want to simultaneously increase exports and decrease imports. That can be only possible if you have deep technological capabilities and that can be facilitated by the AI. You cannot simply increase tariffs and assume that both objectives will be met. At times, if you increase tariffs, the imports do fall, but exports fall even more steeply. With AI, however, countries can potentially achieve both objectives simultaneously. 

IBT: What implications does this have for India’s demographic dividend, and what policy approaches would you suggest?   

Dr Badri Narayanan Gopalakrishnan: Till 2050 or so, India is going to have one of the world’s youngest populations on an average. I believe that we will continue to benefit from this demographic dividend. Millennials and Generation Z cohorts are already using AI even for day-to-day chores. Big tech companies like Google are coming up with a lot of tools that are very powerful and democratize the use of AI. You can utilise plug-and-play AI tools now, which do not require very high end programmers. 

I think we should strive to ensure that the youth gets adequate exposure to AI technology. Some of them can become very highly skilled and do high-end programming. But many of them can only use these plug-and-play AI tools for day-to-day decision making and so on. This has to be integrated with the educational system as well as through skill development initiatives. 

The second is the importance of regulation in AI, especially w.r.t. digital divide and ethics. Some people have more access to AI and others do not. We should have regulations that address ethics and risk in AI and also ensure accountability as well as smooth processes. If you get too much ex ante in the regulation, which is “guilty until proven innocent”, you will have a lot trouble in terms of innovation. So I think the regulation should be very optimal. 

IBT: What are your thoughts on the uses of AI and how it is changing the dynamic of manufacturing competitiveness in global market?

Dr Badri Narayanan Gopalakrishnan: Globally if you see AI as an integral part of manufacturing, I would say that some countries are much more advanced than India. While India is a good player in AI implementation, development and software, it is at a primitive stage when it comes to use of AI in manufacturing. Countries like the US and China have made tremendous progress in this field. We have a lot of catching up to do. It’s not such a daunting challenge, as we have a naturally technology literate and technology intensive workforce. It’s just a matter of pivoting it into AI and ensuring deeper stakeholder engagement.

Dr. Badri Narayanan Gopalakrishnan is Fellow and Former Lead Adviser and Head – Trade, Commerce and Strategic Economic Dialogue, NITI Aayog, Government of India and Member, Committee for Advanced Trade Research, TPCI. Previously, he was a senior economist with the School of Environmental and Forestry Sciences, University of Washington-Seattle. He had also previously co-founded a global consulting firm Infinite Sum Modelling LLC.

Previously, he spent almost a decade at Purdue University and ICRIER, New Delhi, after completing his PhD Economics from IGIDR-Mumbai. His expertise lies in economic/data analytics for business strategy and public policy, employing a variety of quantitative models in several areas. He is widely known for his role in developing global economic and interdisciplinary models and datasets used by thousands of researchers across the world.

He has published five books, over 100 research papers in reputed journals, books, etc., cited over 4200 times by top journals and many more times by top global media outlets. He has served as a consultant/ advisor to McKinsey, UN, World Bank, FAO, WHO, KPMG, ADB, IMF, Harvard University and many other organizations including startups.

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