The crash of oil prices and slowdown of China’s economy have fetched headlines in media off late. The subject has encouraged me to understand economic reasons and relate the implications for Indian services industries. It would be good to preempt a discussion on the topic whether what could happen to Chinese manufacturing or to Middle-East Oil industry could repeat for Indian IT? If so, what should India do to prepare itself today to face this future?
(1) Understanding the Context – Robotics, Machine Learning, and IoT
You are in the final lap of your early morning dream and the alarm goes off at 6AM. Suddenly you remember that you forgot to buy milk yesterday and since you have an early morning meeting, it seems that you have to start your day without your cup of steaming coffee. Fortunately your Refrigerator has already ordered milk based on your regular consumption pattern and available inventory. Also, your alarm clock has already instructed your coffee maker to start brewing your coffee and based on your office timing/meeting schedule, your laptop has instructed your geyser to keep the water in the bathroom at your preferred temperature.
Does it sound like dream or science fiction? Not anymore. With the rapid development in the field of Robotics, Machine Learning and IoT, we have all the pieces of technology to make this happen and it’s just a matter of time when this technology pieces will be integrated to transform our way of living.
Robotics deals with programmed machines designed to do labor intensive work. Machine Learning is the science of getting computers and machines to function without being programmed to do so. The combination of Robotics and Machine learning results in Robots with the capability to do the jobs on their own – e.g. Self- driving cars.
Machine Learning tasks can start with supervised learning, then moving to a semi-supervised state and then unsupervised learning. It basically contains the essence of statistical pattern recognition, parametric/non-parametric algorithms, neural networks, recommender systems etc. Machine learning is an advanced state of intelligence – With Internet of Things (IOT), multiple robots can get interconnected.
Internet of Things (IoT) offers an environment where objects or people have unique identifiers and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction. As per Gartner, by 2020 there will be over 26 billion connected devices. IoT can be applied to monitoring and capturing data from anything and everything connected to a network – e.g. Media, Environmental Monitoring, Infrastructure Management, Manufacturing, Energy Management, Medical & Healthcare Systems, Building & Home Automation or Transportation.
A thing, in the Internet of Things, can be anything that can be assigned an IP address and has ability to transfer data over a network – e.g. a patient with heart monitor implant, and other similar devices/objects. IPv6 has offered the capability of assigning unique IP address to every atom on the surface of the earth for many earths.
(2) What does advancement of Technology mean for Indian Economy?
Advancement of IT has been a boon for Indian economy. 27% of India’s workforce deployed in services sector contribute to 57% of GDP (compare this to 50% workforce in Agriculture contributing to 17% of GDP, 22% workforce in manufacturing contributes to 26% of GDP).
How would the advancement of technology impact the GDP? There are two ways to look at this. Currently the IT work in India has linear correlation to number people deployed, If the same work can be done with smarter machines / robots in India, the GDP would go even further up, keeping the % of workforce deployed same or lesser.
Lets discuss any learnings from global oil price crash and from slow-down of Chinese Manufacturing/ Chinese Economy.
(i) Learning from Global Oil Price Crash
I started to analyze what caused the crash of oil prices? Going with simple demand supply logic, reasons could include (i) Increase in Supply of the Oil (ii) Reduced demand for Oil.
One of the key reasons cited to increased oil supply is Fracking, a technique that extracts more hydrocarbon form the ground has increased the Oil extraction yield, resulting in larger supply of oil, even though the same has caused concerns on environmental damage. At the same time, there has been reduced demand for oil with more and more fuel efficient cars, plants and gadgets.
Oil price crash could further aggravate with advances in solar and wind energy production and usage. It is expected that in another 20 years solar energy that meets 1% energy needs today would meet 100% of the energy needs making energy almost free. Disruptive innovations improve performance multifold at the same time reduce the cost of technology.
(ii) Learning from Economic Slowdown of China What caused the slow-down in China?
Many developed countries moved their manufacturing to China boosting Chinese economy. However, over the years increased labor and shipping cost reduced the cost advantage. Today, robots have replaced labor in manufacturing making Chinese manufacturing less competitive. For China to continue its competitive advantage in manufacturing, many Chinese companies have begun to deploy robots in factories. However, this would not solve the shipping cost problems, many developed countries would take back the manufacturing work back to their base and use robots.
Conventional manufacturing space is changing as well, with now more and more use of 3D printing. 3D printing could evolve in printers for home that could produce toys and other household goods. Advanced 3D printers may then compete against robots.
Did the above shocks happen all of a sudden or were these predictable? Anyone who can intelligently observes the evolution of technology should have been able to predict the oil price crash or slowdown of Chinese economy.
(3) Outlook for Services Sector in India – A Point of View
The technological advances could have a negative impact on agricultural sector workforce if machines only replace human labor. Agriculture sector has to use technology to make farming more effective. E.g. IoT enabled sensors on the farmland can perform a soil culture test and take a decision on the amount of fertilizer, manures and water needed. Results can then be validated with the meteorological data on rainfall and temperature. Such technological advances would help farmers do farming more effectively and efficiently.
Service sector will benefit from this technological boon as robots can be utilized to perform the mundane repetitive jobs, starting from all Level 1 support in customer care centers, teller services in banks, check-ins in airports, waiting services in restaurants and even coding and testing in IT industry.
As these robots keep learning on the job due to their machine learning capability, they can perform the job even better than they were initially programmed and eventually develop the decision making skills. The human workforce can be utilized for more complex activities that require emotional intelligence.
If the countries that source IT services from India deploy smarter machines directly, there could be adverse impact for India. So India has to produce the smart machines itself and program them, to be able to lead the change, rather than be threatened about robots resulting in loss of jobs.
(4) Concluding Thoughts
The world is going through a breakthrough technology shift, which can help transform lives. The implications of technological advancement and evolution of nations is a good topic of research. America leads technology boom and reinvents itself through economic cycles every 30-40 years. Middle-east, once known for oil monopoly is going through instability. More Oil producers such as Venezuela would find it uneconomic to produce oil.
China joined the race for manufacturing few decades back with its cost effective skilled labor, with global manufacturing finding destination in China – but the country has already seen economic slowdown.
Recently India had joined this race of manufacturing and industrial output with the “Make in India” initiative by the Government of India. While India is late in the race, being late could have an advantage as well of being the first in adapting to new technology.
India with its large population, strong consumer economy, investment in education, democratic political structure has potential to lead the change. Robotics and Machine Learning when combined with IoT offer technological advancement to help build a stronger India.