Skill Premium

• Definition: The skill premium is the wage difference between high-skilled workers (e.g., professionals, engineers, analysts) and low-skilled workers (e.g., manual labour, routine tasks).
• Measurement: Typically expressed as the ratio of wages of high-skilled to low-skilled workers.
• Economic Insight:
• • A high skill premium indicates strong demand for skilled labour relative to supply.
  • A decline in skill premium means the wage gap is narrowing, often due to automation/AI reducing demand for skilled tasks while still raising overall wages.

Opportunities for India

• Digital Services Strength: India is already a global leader in IT and digitally deliverable services (>$250 bn exports in 2023–24). AI-driven trade growth (42% in digitally deliverable services) could significantly benefit India.
• Cost Efficiency: AI tools can enhance supply chain visibility, automate customs, and reduce operational costs, improving India’s trade competitiveness.
• Innovation and Startups: India has over 5,000 AI-focused startups; increased AI patenting and global collaborations could position India as an innovation hub.
• SME Integration: With proper support, AI adoption could help small and medium enterprises (SMEs) integrate into global value chains.
• Labour Upskilling: India’s large young workforce can be trained in AI-related skills, tapping global demand.

Risks and Challenges

• Digital Divide: Rural-urban disparity in digital infrastructure could limit inclusive benefits; SMEs lag in AI adoption.
• Labour Market Disruption: AI could displace medium- and high-skilled jobs in IT, BPO, and financial services, sectors critical for India’s employment.
• Tariff and Market Barriers: Bound tariffs on AI-enabling goods in some economies could restrict India’s access.
• Global Governance: If WTO’s AI governance framework is shaped mainly by developed nations, India may face restrictive norms.
• Skill Premium Decline: Declining wage advantage for skilled labour could affect India’s white-collar job market.