Economic Survey 2025: If AI cuts jobs, govt may 'tax profits' from replacement of labour; here's why

Economic Survey 2025: The Economic Survey highlighted the growing unease and anxiety around artificial intelligence (AI) disrupting labour markets and warned that if companies do not optimise the introduction of AI over a longer horizon or handle it with sensitivity, demand for policy intervention and the demand on fiscal resources to compensate, may become inevitable.

The pre-budget document cited an International Monetary Fund (IMF) paper to say that governments may be forced to tax the incremental profit of corporations that use AI to replace labour. "It will leave everyone worse off, and the country's growth potential will suffer as a result," it warned. It asserted that labour-surplus countries cannot afford protracted labour displacement.

Also Read: 90-hour work week debate: Here’s how India compares with US, UK, Germany and other countries on average working hours

Economic Survey 2025: How AI can disrupt India's labor force

With an entire chapter dedicated to 'Labour in the AI era' —a reflection of the seriousness accorded to the issue—the Economic Survey noted that while the impact of AI on labour will be felt across the world, "the problem is magnified for India, given its size and its relatively low per capita income."

"If companies do not optimise the introduction of AI over a longer horizon and do not handle it with sensitivity, the demand for policy intervention and the demand on fiscal resources to compensate will be irresistible," said the Eco Survey. The state, in turn, must resort to taxation of profits generated from replacing labour with technology to mobilise those resources.

The Survey called for regulatory framework tweaks to align AI use with societal values. It noted that structural changes to how children are educated will be needed, in addition to safety nets that can shield existing workers from an economic and social fallout. It advocated a mechanism of enabling 'stewarding institutions' to help workers adapt to changing demands while providing safety nets.

Also Read: Expert View | Budget 2025 is a single event in broad cycle; Market rebounds reward patient investors: Vaibhav Porwal

The document, which details the state of the economy over the current fiscal year, went in-depth into the impact of AI on jobs, and not for the first time. The Economic Survey, even in 2024, had said the advent of AI casts a "huge pall of uncertainty" regarding its impact on workers across skill levels.

It highlighted that AI's advancement presents unprecedented opportunities and significant challenges for labour markets worldwide. These challenges and AI's experimental nature create a window for policymakers to act. "Concerns and fears about AI disrupting labour markets have intensified as developments in the field have continually demonstrated rapid progress over the last four years," it said.

The increasing complexity of the models being developed today marks a paradigm shift in the field of AI. In a few years, 'intelligent machines' will be capable of performing tasks that are predominantly handled by humans, it contended. The Survey cited the founder of the AI frontrunner OpenAI's blog post on how the company expects to have office-ready 'AI workers' by the end of 2025.

Also Read: Without upskilling, AI may put people out of jobs for long: Economic Survey 2025

“With executives optimistic about AI's capabilities and the cost-saving potential they expect it to possess, the impact of AI on the labour market, particularly entry-level jobs, is becoming a point of concern for policymakers,” it said.

"This economic displacement adds to a broader sense of unease about whether AI will exacerbate existing social and economic divides," it said. It said structural changes to how children are educated will be required, in addition to safety nets that can shield existing workers from economic and social fallout.

The Survey said expectations point toward a trend where AI outperforms humans in critical decision-making processes in healthcare, criminal justice, education, business, and financial services. It was observed that utilising the window of time available during the nascent stages of AI to build robust institutions can ensure that the nation is well placed to minimise costs. 

"This can then help tilt the scale towards benefits, bringing a balance to the 'cost-benefit' aspect in a labour-driven, services-dependent economy like India," it said. Navigating this transformation necessitates coordinated participation from all agents. A tripartite compact between the government, private sector, and academia can ensure that gains from AI-driven productivity are widely distributed. The document said India's demographic advantage and diverse economic landscape position it uniquely to benefit from AI.