AI Poses Challenge To India's Services-Led Growth Model, Manufacturing Push Needed: Morgan Stanley

New Delhi, Jun 12 (KNN) Artificial intelligence is emerging as a potential challenge to India's traditional services-export-led growth model, increasing the urgency of strengthening the country's manufacturing sector, according to a report by Morgan Stanley.
 
They warned that AI-driven disruption could significantly slow the growth of India's IT services exports, projecting annual growth of 4.4 percent compared with the average growth rate of 9.8 percent recorded over the previous five years, reported Money Control.
 
AI Disruption May Slow Growth In IT Services Exports
 
According to the report, services exports have become a key pillar of the Indian economy, expanding to approximately USD 321 billion, equivalent to 7.9 percent of GDP. 
 
The sector has played a crucial role in supporting the country's balance of payments and generating formal-sector employment.
 
However, advances in artificial intelligence could alter the global services landscape and create headwinds for India's services export sector, which has been a major contributor to economic growth over the past two decades.
 
Manufacturing Seen As Key To Long-Term Economic Growth
 
Morgan Stanley noted that while recent policy measures aimed at attracting foreign capital inflows may provide near-term support to India's external sector, they are unlikely to fully address the country's long-term financing requirements.
 
The report argued that India needs to expand its manufacturing base and increase its share in global goods exports to sustain long-term economic growth.
 
According to Morgan Stanley, manufacturing will be critical not only for boosting exports but also for generating large-scale employment and strengthening India's external sector.
 
Job Creation Challenge Requires Faster Economic Expansion
 
The report highlighted India's employment challenge, estimating that the country would need to maintain real GDP growth of around 7.4 percent annually over the next decade to absorb new entrants into the labour force.
 
To address existing underemployment alongside new job creation requirements, economic growth may need to accelerate to between 12 percent and 14 percent, it said.
 
Morgan Stanley emphasised that labour-intensive manufacturing sectors would need to play a larger role in creating jobs at scale while supporting economic expansion.
 
Structural Reforms Essential For Export Competitiveness
 
They also projected India's current account deficit to widen to around 1.8 percent of GDP in FY27, underlining the importance of stronger export growth and sustained capital inflows.
 
It said structural reforms aimed at improving manufacturing competitiveness and increasing India's share of global export markets would remain essential for meeting the country's long-term growth, employment and external financing needs.
 
(KNN Bureau)