Artificial Intelligence, Deflation in Commodities Can Put India Into Debt Crisis: UNCTAD

Chennai: The negative effects of artificial intelligence on labour-intensive services and deflation in commodities due to use of renewable energy can lead to debt crises in developing countries, including India, finds the UN's trade and development body.

While artificial intelligence in general tends to be overhyped, it likely entails significant negative consequences for labour-intensive offshore services such as telephone-based, low-level technology help and customer service. Routine, codifiable customer service exports are already being handed to artificial intelligence chatbots, decreasing labour demand and thus the aggregate value of such exports. This shift can be especially hard on providers in India and the Philippines.

In 2023, seven of the giant information technology companies of India, including the two biggest, Tata Consultancy Services and Infosys, collectively laid off 75,000 employees or about 4 per cent of their combined workforce. Such indicators are mirrored in current shifts in the pattern of foreign direct investment globally, where the share of greenfield investment into high-value-added sectors has grown from 45 per cent in 2004–2007 to 63 per cent in 2020–2023.

This along with abundant renewable energy might spark an era of deflation for many primary commodities and undifferentiated manufactured goods.

This is likely to generate two financial problems for developing economies. First, it can reduce export revenues and slow aggregate demand. In turn, this can hinder local investment and global demand for investment goods.

Second, falling prices for exports imply less revenue to service debts with the interest and principal fixed in nominal terms. This can intensify stress from external debt on both the macroeconomic balance and aggregate demand.

“If left unaddressed by policymakers, these two forces are likely to combine into a cascade of complex, system-level crises, akin to the lost decade that Latin American and other countries experienced in the wake of the 1982 debt crisis,” finds UNCTAD.

Hence, reducing current debt burdens is vital for enabling their financial sustainability in the changing economy.