India growth story at risk? Bernstein flags jobs, AI and subsidy concerns in letter to PM Modi

Global brokerage Bernstein has raised concerns on jobs, artificial intelligence, and subsidies in an open letter to Prime Minister Narendra Modi. It said India may “under-deliver on its potential” if reforms are delayed.

The letter was written by Venugopal Garre and Nikhil Arela. It said India has made progress. But it warned that key risks remain.

Growth strong, but risks building

Bernstein said India’s focus on capital expenditure has helped the economy. It has supported stability and earnings growth.

But it warned against complacency. Global supply chains are shifting. Technology is changing fast. India still lags in infrastructure and innovation, the letter said.

Jobs under pressure as AI rises

The brokerage flagged jobs as a key risk. India’s services sector has created many jobs in the past.

But generative AI can disrupt this model. Many roles in IT services and BPO may face automation.

Bernstein said India risks becoming a “user” of AI, not a “creator”. Most value is still with the US and China.

Manufacturing not creating enough jobs

The letter said manufacturing may not absorb labour at scale. The China+1 opportunity has not fully translated into jobs.

Private capex is still selective. Supply chains are not deep enough.

Many workers are moving to low-end services or informal jobs. This raises concerns on job quality.

Agriculture remains weak spot

Agriculture employs 42-45 per cent of the workforce. But it contributes only 15-16 per cent to GDP.

Bernstein said reforms are needed. It called for better irrigation, storage, and logistics. It also suggested reducing subsidy dependence.

Energy risks remain high

India depends heavily on imported crude oil. About 88 per cent of demand is met through imports.

The report also flagged inefficiencies in the power sector.

It suggested faster adoption of electric vehicles. It also called for a clear plan to reduce use of petrol and diesel vehicles.

India needs stronger AI strategy

On AI, Bernstein said India lacks strong domestic capabilities. It does not own major AI models.

It warned that Indian data is being used by global firms. But value creation is happening outside India.

The brokerage called for investment in compute, local AI models, and data systems.

Subsidies may crowd out investment

The letter raised concern on rising cash transfer schemes. It estimated spending at Rs 1.7-2.5 trillion a year.

Such spending supports consumption. But it may reduce funds for capital expenditure.

Bernstein said investment in infrastructure gives higher long-term returns.

Low R&D spend, weak public services

India’s R&D spending is low at 0.6-0.7 per cent of GDP.

The report also flagged weak public services. It said there is a gap between taxes paid and service quality.

Reforms need to be faster

Bernstein said slow reforms may not work now. Delay can lead to long-term dependence.

India has capital and talent. But it needs faster decisions.

“The window to act is narrowing,” the letter said.

Earlier 2019 letter flagged financial sector issues

Bernstein had written to the Prime Minister in 2019 as well.

It had then highlighted the need to fix the financial sector. It called for bank recapitalisation and faster resolution of bad loans.

It said a stronger financial system can support growth.

The latest letter expands the focus. It highlights risks in jobs, AI, and long-term growth.