AI is changing the way Indian businesses function

Source: The post AI is changing the way Indian businesses function has been created, based on the article “From pyramids to hourglasses: how AI can change Indian workplaces” published in “The Hindu” on 19 May 2025. AI is changing the way Indian businesses function.

UPSC Syllabus Topic: GS Paper 3 – science and technology – Awareness in IT, Space, Computers, and Robotics.

Context: AI is no longer just automating tasks — it is transforming how Indian businesses operate. The shift from the traditional pyramid model to an “hourglass” model, where AI trims the middle layer, offers both promise and risks for India’s future in global business.

For detailed information on AI’s disruptive economic impact, an India check read this article here

The Hourglass Model of Work

1. AI Reduces Managerial Layers: In this new model, AI manages coordination and routine decisions. Top leaders focus on strategy, while frontline teams use insights and tools to work smarter.
2. Efficiency and Global Adoption: McKinsey predicts up to 25% productivity gains from AI. SMEs in India can benefit significantly from this increase. The model is rapidly gaining ground in the U.S. and Europe.
3. Automation Driven by High Labour Costs: With U.S. wages around $35/hour and Indian wages at $1–2, automation is cost-effective abroad. Many global firms use AI for onboarding and worker monitoring, leading to flatter structures.

India’s Unique Approach to AI Integration

1. Innovation Hubs vs National Readiness: India has vibrant tech centres like Bengaluru and Hyderabad. Yet, it ranks 72nd on the IMF’s AI Preparedness Index (0.49), behind the U.S. (0.77) and Singapore (0.80), due to rural digital gaps and hierarchical norms.
2. Hybrid Adoption in Indian Firms: Companies like Flipkart and Reliance Jio use AI for predictions and logistics. But they retain management layers to handle India’s linguistic and regional complexity.
3. Cultural and Cost Constraints: Low wages reduce the urgency to automate. A cultural preference for hierarchy, especially in family firms, also limits structural flattening.

Benefits of AI-Human Blending

1. Higher Efficiency and Innovation: AI can improve forecasting and reduce waste — for example, a textile maker in Surat could use AI to predict fabric demand, reducing surplus and increasing profits. In the tech sector, generative AI boosts task output by 66%, freeing up time for innovation.
2. Flexibility and Crisis Response: During COVID-19, pharma companies used AI to navigate supply chains. In banks, chatbots and automated payroll improve service and staff productivity.

New Roles and Job Demand: AI is creating new professions like AI engineers and data ethicists. Deloitte and Nasscom expect demand to reach 1.25 million by 2027.

Emerging Challenges and Limitations

1. Job Displacement Risks: Globally, up to 800 million jobs may shift by 2030. In India, low-skilled and older workers are especially vulnerable. Pew estimates 19% of U.S. jobs face high AI exposure.
2. Ethical and Privacy Issues: AI errors can arise from biased data. With 79% of Indians opposing data sales (ISACA), trust is critical. The 2023 Data Protection Act is a step forward but still evolving.
3. Infrastructure and Cultural Gaps: Around 65% of Indians live in rural areas with poor AI access. Many businesses lack funds for AI adoption. Resistance from traditional structures also slows change.

Way Forward for Indian Firms

1. Focus on Reskilling: Programs like Skill India should teach AI basics, data use, and critical thinking.
2. Adopt a Balanced AI Model: Use AI for analytics and customer service, but retain humans for key decisions.
3. Build Ethical, Inclusive AI: Follow OECD standards to ensure fairness and reduce bias. Partner with global firms to adapt affordable AI for Indian SMEs.
4. Treat AI as a Long-Term Process: Track risks and regulations continuously. India’s model must reflect its social and economic realities, not just global trends.

Question for practice:

Evaluate how the shift to the AI-driven hourglass model is reshaping the structure and functioning of Indian businesses.