India is currently addressing the AI challenge by focusing on AI models. But the need of the hour is to determine how AI can be used to address real-world problems. This is where India has an opportunity to lead - downstream of where its current focus lies.

This is a link-enhanced version of an article that first appeared in the Mint. You can read the original here. For the full archive of all the Ex Machina articles, please visit my website.

Earlier this year, Amazon announced that it was eliminating 14,000 management positions because artificial intelligence (AI) tools had rendered those middle-management roles redundant. Amazon isn’t the only one—Microsoft, Google and IBM have all announced AI-related layoffs.

According to a 2023 report by Niti Aayog, 1.5 million Indian jobs in the IT and business process outsourcing (BPO) sectors alone are expected to be at high risk by 2031. McKinsey believes that as many as 69% of tasks in India’s IT services industry can already be automated with existing AI technology, suggesting that as many as 3-4 million jobs in the IT and BPO sectors could be at risk in the near to medium term.

Our instinctive response has been to try to catch up—to build AI capabilities so that we can replace the jobs being lost by upskilling displaced workers with the technology that displaced them. We have announced AI education initiatives, established new AI research centres and funded GPU clusters and data centres that we believe these newly trained engineers will be able to use for building AI applications.

But this strategy is unlikely to be effective. Firstly, India will not be able to bridge the skills gap by simply retraining its existing workforce. Unlike the IT industry, which has a broad base, AI has an inverted pyramid and is staffed in exactly the opposite way that a BPO centre is staffed. As a result, even if we manage to reskill all those in the traditional IT industry, only a small fraction of those reskilled IT workers will be needed going forward. What’s more, unlike the US, which boasts of 30 years of AI research infrastructure and top universities that attract global talent, and China, which is investing billions in AI research and already has a massive pool of strong STEM graduates, India currently produces fewer than 500 AI PhDs annually. Even if we increase this 10-fold, we will still be playing catch-up in a field where first-mover advantages matter enormously.

The trouble with competing in the race to build better AI models is that it requires us to compete upstream in the AI value chain in a market already crowded by players with significantly more capital and hardware infrastructure, which places them ahead in the game. As noble as it might seem for us to fight the good fight, there are other areas in which Indian investments in time and resources are likely to yield better results.

When the automobile disrupted traditional urban mobility and transport dynamics, the real opportunity was not in making cars, but in the novel ways in which they could be used for business and the new liberties that arose from being able to use these machines for things that were not possible earlier. When Apple invented the smartphone, it did not just create a revolutionary communication device, but also made it possible for brand new businesses (such as ride-hailing, food delivery and digital payments) to emerge. Every technological transformation creates ripples of opportunity downstream that offer new avenues for entrepreneurship.

This suggests that the AI opportunity lies not in competing with big AI labs to build better models, but rather in discovering all the various ways in which AI can be deployed to create value. 

This, in turn, suggests that instead of competing with countries that are at the cutting edge of developing new foundational AI models, India may be far better off figuring out how to use AI to do things that would not have been possible previously. One of the clearest signs of this downstream potential is how dramatically AI has already lowered barriers to creative endeavours.

Already, to write a story or create an image, a musical composition or a software feature, all you need to do is describe what you want and AI will execute it. Even just a few years ago, filmmaking required large crews, expensive equipment and a budget that ran into millions. AI has made it possible to create visual effects, voice actors and music scores, with film editing done and other technical skills deployed at a fraction of that cost. Similarly, music production used to require studio recording, mixing and mastering skills. Today, with AI, almost anyone can generate a score, create vocal effects and mix tracks.

Just as the world saw in the case of every other technological transformation that created new jobs and industries downstream of the actual disruption it caused, AI too will birth business opportunities that are not even conceivable today. If we really want to address the disruptions that AI will cause in the job market, we should focus our energies on enabling as many of our people as possible to figure out how to use AI and do all we can to make it possible for our young entrepreneurs to leverage this new technology in as many new and interesting ways as they can imagine.

The next three to five years will be a period of intense experimentation, when AI-assisted business models will be tested, refined and scaled. India’s entrepreneurs have a rare early-mover advantage—not in building the models themselves, but in discovering what those models make possible. If we invest our energy downstream, in imagining the new possibilities that are opening up, we will be able to harness the real opportunity that AI offers. Our best response to the AI revolution is not to build better intelligence, but discover the many ways in which it can be put to use.

India needs to make the most of this opportunity.