Nobel-winner Paul Krugman warns India story could end with mass unemployment

Paul Krugman, the American economist who won a Nobel Prize in 2008, has warned that India could end up with huge mass unemployment if it does not grow its manufacturing sector.

"There is this concept called artificial intelligence that you should be wary of. In future, while diagnosis may be outsourced to a doctor in India, it could also go to a firm based on artificial intelligence. Things like this could be a cause for worry for Indian services sector," Krugman said while speaking at a News 18 event.

"Japan is no longer a superpower because its working-age population declined, and China is looking the same. In Asia, India could take the lead but only if it also develops its manufacturing sector, not only the services one,” he said.

“India’s lack in the manufacturing sector could work against it, as it doesn't have the jobs essential to sustain the projected growth in demography. You have to find jobs for people,” he said.

On the other hand, India can also ride the next wave of globalisation on its demographic dividend. "India's growth story is quite unique. Services propelling growth to an extent that hasn't been seen anywhere else in the world and the possibilities of service globalisation has only just begun. Globalisation of service trade has a huge potential. That's one reason to be especially hopeful of India’s progress. It has the first-mover's advantage here," he said.

Krugman said India's growth story was incredible but it never got the attention it deserved because China hogged the world's attention. "Rest of the world is not paying as much attention to India as it should. If China wasn't around, we would have said what an incredible story India is. Quadrupling of GDP per capita in a very short time, becoming a better place to do business etc."

Krugman said India's growth story would continue to improve at a higher rate. "India's working-age population is projected to grow substantially. Countries across the world from Japan to Italy to China are suffering or are about to suffer from lack of manpower to propel their growth."

He said there were still huge parts of India that had yet to realise their full potential. "Prime Minister Modi talked about bringing electricity to parts of India that have never seen it. When such a plan is fulfilled you obviously will see a huge boost to your economy."

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