EY Study Says Generative AI Could Boost India’s Economy By $1.2-1.5 Trillion in the Next Seven Years; The Global Outlook For Generative AI In The Upcoming Years.

According to EY, Generative AI has the potential to catalyze a substantial economic boost for India, projecting a range of $1.2-1.5 trillion over the next seven years.

In an extensive report by EY titled ‘The AIdea of India: Generative AI’s impact on India’s digital growth’, a comprehensive integration of Gen AI technology across diverse sectors could contribute an additional $359–438 billion to the Indian economy in the fiscal year 2029–30, resulting in a notable 5.9%–7.2% increase in GDP compared to the baseline.

The study identifies key sectors, including business services, financial services, education, retail, and healthcare, as major contributors to the anticipated impact.
Improved employee productivity, enhanced operational efficiency, and more robust customer engagement are cited as the driving factors behind this economic surge.

Further insights from the EY analysis shed light on how various industries are preparing for the adoption of Gen AI.

Based on a survey including over 200 C-suite participants, the findings reveal that 60% of organizations acknowledge the significant influence Gen AI will exert on their business models. However, a noteworthy 75% express a low to moderate level of readiness to harness the benefits of Gen AI.

Primary challenges faced by these organizations include a reported shortage of skilled personnel (52% of respondents) and the availability of unclear use cases (cited by 47%). Surprisingly, only 36% of organizations consider data privacy as a potential risk associated with Gen AI, according to the research.

Mahesh Makhija, Technology Consulting Leader at EY India, emphasizes organisations’ need to adopt an AI-first approach to digital transformation.

He notes that while AI is in its early stages, there is a strong sense of optimism; therefore, to unlock its full potential, India must enhance its efforts with increased government involvement in development and deployment.
Additionally, fostering a conducive computer ecosystem for continuous innovation and growth is deemed vital for India to stay competitive in this evolving landscape.

EY’s experts assert that making Gen AI accessible to everyone aligns with the National Strategy for Artificial Intelligence (2018), aiming for inclusive benefits in areas such as education, healthcare, farming, smart cities, and beyond.

Generative AI Could Contribute Trillions to the Global Economy
A McKinsey report assesses the profound impact generative AI could have on the world economy.

The analysis reveals staggering potential, suggesting that AI has the capacity to add the equivalent of $2.6 trillion to $4.4 trillion annually to the global economy by 2040—a figure that rivals the entire GDP of the United Kingdom in 2021, standing at $3.1 trillion.

Moreover, generative AI could foster labor productivity growth at a rate of 0.1% to 0.6% annually during the same period.

The report emphasizes that generative AI will exert a significant influence across all industry sectors, with banking, high tech, and life sciences being particularly poised for substantial impacts as a percentage of their revenues.

Within the banking sector alone, the technology could deliver an annual value ranging between $200 billion and $340 billion. The retail and consumer packaged goods industries may experience an annual impact of $400 billion to $660 billion.

The study identifies four primary areas where generative AI can contribute the most value: customer operations, marketing and sales, software engineering, and research and development.

Researchers scrutinized 63 different use cases, ranging from customer interactions to content and code creation.

By automating certain tasks, McKinsey suggests that generative AI will enhance the capabilities of workers, potentially automating up to 70% of the activities dominating a worker’s daily routine. This automation allows humans to focus on more crucial tasks, although it necessitates support from employers.

“Generative AI can substantially increase labor productivity across the economy, but that will require investments to support workers as they shift work activities or change jobs,” the report states.

“Combining generative AI with all other technologies, work automation could add 0.2 to 3.3 percentage points annually to productivity growth. However, workers will need support in learning new skills, and some will change occupations. If worker transitions and other risks can be managed, generative AI could contribute substantively to economic growth and support a more sustainable, inclusive world.”

Similarly, Goldman Sachs anticipates a notable rise in the economic contribution of generative artificial intelligence (AI) to the global gross domestic product (GDP) over the next decade, fueled by the escalating adoption of this emerging technology.

The investment bank now projects a long-term boost between 10 and 15 per cent, assuming AI adoption does not permanently displace workers and that “capital stock rises to match productivity improvements.”

This revised estimate surpasses Goldman Sachs’ earlier projection, which foresaw a global GDP increase of 7 to 13 per cent through the successful integration of AI into labor productivity.

However, the precision of these new estimates remains contingent on the uncertain timing and magnitude of AI’s effects on a global scale, as highlighted by economists Joseph Briggs and Devesh Kodnani in their report.

The economists acknowledge potential barriers to adoption that could impede productivity growth, even if the anticipated efficiency gains are eventually realized. In practice, the net effect of generative AI on GDP might be somewhat diminished for two primary reasons.

Firstly, if considered as the “next wave” of innovation, generative AI’s growth impact may not be fully additive to the current GDP trend.

The report notes that information and communication technology, a recent driver of almost half of labor productivity growth in developing market economies, might see some AI-related gains substituting for non-AI baseline growth.

Secondly, the report emphasizes the possibility of underlying productivity growth slowing down. Recent research indicates that total factor productivity tends to grow linearly in the near term, with occasional step-ups following technological regime shifts, rather than exponentially.

Despite the immense potential of generative AI and substantial investments in AI startups globally, including those in the GCC countries, where economic benefits are projected to reach $23.5 billion by 2030, caution is advised.

According to a study by Gartner, the report acknowledges concerns about potential overhype, as generative AI tops the list for “inflated expectations” in emerging technology for 2023.

Goldman Sachs predicts that the GDP growth boost from generative AI will likely be modest, not exceeding 0.1 percentage point until 2027 in the US, 2028 to 2032 in other developed markets and advanced emerging economies, and 2034 or later in emerging markets.

These projections draw on historical productivity gains, business leaders’ commentary, and cross-country technology adoption patterns, as outlined by the economists.

Therefore, despite optimism, not all perspectives align.

Another report in April from Goldman Sachs predicted “significant disruption” in the labor market due to AI, suggesting that up to 300 million jobs could be affected, with as much as 50% of the workforce potentially being replaced in exposed occupations.

Office jobs face the highest risk of being automated, with administrative support roles being particularly vulnerable, with 46% of their tasks deemed automatable.

Legal work tasks stand at 44% vulnerability, and architects and engineers might see up to 37% of their tasks exposed.

As mentioned above, even as McKinsey focuses on the economic potential of AI, the report acknowledges its downsides.

The tools, capable of creating enormous value for the global economy, also pose the risk of being more destabilizing than previous generations of artificial intelligence.

With the ability to harness language—a fundamental requirement for work activities linked to expertise and knowledge—generative AI can be wielded to hurt feelings, create misunderstandings, obscure truth, and incite violence, potentially leading to wars.

The Last Bit, the journey into the realm of Generative AI, unveils possibilities for India and globally.

The anticipated surge in its contribution to gross domestic product (GDP) brings both promises and challenges to the forefront. While the economies stand to benefit from increased productivity and potential profits, caution is warranted to address the cons associated with the widespread adoption of generative AI.

The risks of overhype and inflated expectations stress the importance of approaching generative AI with a realistic perspective.

Managing the disruption in the labour market caused by the automation of routine tasks requires thoughtful strategies to upskill the workforce and ensure a smooth transition.

Similarly, mitigating the potential for misuse, particularly in language generation, calls for robust safeguards and ethical frameworks.

Additionally, concerns about a dependency on AI and a possible slowdown in underlying productivity growth must be addressed to maintain a balanced and sustainable trajectory.

As generative AI evolves, the conclusion is clear: embracing its economic potential requires a holistic approach. Striking the right balance between reaping the benefits and addressing the challenges will ensure that generative AI contributes substantively to global economic growth while fostering inclusivity and ethical considerations.