Navigating the fourth industrial revolution India cannot afford to lose out on the offerings of this revolution

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India’s advantage of cheap labour, mostly poorly skilled, will be blunted by fourth industrial revolution.

The crane used for loading ships can be fitted with sensors that measure the weight of the containers and plug it into a software model. Using the design of the ship, the software sends instructions on where exactly to place the container in order to optimize the weight-balance of the ship. This process can enhance the fuel efficiency of the ship by 5-8%, according to Markus Lorenz of the Boston Consulting Group. By combining the data from the user cards and systems built-in to report train malfunctions, Traffic For London automatically credits the user’s account for delays without the latter being required to fill an application form. These are just a couple of examples, but they give a flavour of what the fourth industrial revolution is about.

The fourth industrial revolution combines digital and physical systems to completely transform the interaction between humans and machines. The tools that it has at its disposal include—but are not limited to—big data, robotics, augmented reality and the Internet of Things. The fourth industrial revolution builds upon the first three industrial revolutions (steam power and mechanical production; assembly lines and electrification; and electronics and computing) and the rapid pace of technological progress since then to achieve almost surreal results by fusing the boundaries between all of them.

The impact of the fourth industrial revolution has so far not been reflected in productivity numbers. Reserve Bank of India governor Raghuram Rajan speculated, speaking at the just-concluded annual meeting of the World Economic Forum, which this year was dedicated to the fourth industrial revolution, on three possible reasons for this. Perhaps it will take more time. Or maybe the inadequate monetization of much of what is being built may be playing a role. Or it might be entirely possible that the way the world measures productivity is outdated and needs to be altered.

Notwithstanding the debate on productivity, the fourth industrial revolution is real and its impact can be felt even if not measured. It is, therefore, important to be aware of the implications of these developments. The biggest impact, perhaps, will be felt by the labour market. The fourth industrial revolution, by its end, might be responsible for a large tranche of job losses at the lower end of the skill spectrum. This will be offset—at least partially—by an increase in demand for high-skill jobs. Driverless cars, for instance, will obviate the need for drivers but require a lot of smart coders who can make such cars ply the roads in different parts of the world safely.

Besides making them stay competitive, the tools of the fourth industrial revolution help firms in a number of ways. Robots, for instance, do not unionize—at least not yet—nor do they litigate. While such developments that hurt vested interests will create obstacles, additional questions around individual privacy and national security might become a millstone around the necks of those at the forefront of the revolution.

While the world at large will be grappling with such issues, how important is the fourth industrial revolution for India? Extremely important. In 1600, India contributed more than 22% of the world’s gross domestic product, which plummeted to about 4% in 1990 before economic reforms revved it up to 6.8%. A major reason was India failing to climb the bandwagon of the first industrial revolution. India remained behind the curve on the next two as well. If India fails to reap the benefits of the fourth, it will not have imperial Britain to blame this time.

However, India’s path is strewn with challenges. Its comparative advantage of cheap labour, most of which is very poorly skilled, will be blunted by the fourth industrial revolution. While India needs to invest heavily in upskilling initiatives, the probability of some dislocations cannot be discounted. This will require it to make provisions for elaborate safety nets without letting it degenerate into an entitlement culture.

Building the right institutions of governance, particularly regulatory institutions, is another challenge. Hierarchical bureaucracies operating in silos are not geared to deal with networked firms operating on dynamic real-time data. For example, the Karnataka transport department’s recently framed guidelines prohibit, among other absurd measures, dynamic pricing by app-based taxi operators. Regulators have to do a lot better for India to realize the fourth industrial revolution’s benefits.