Mint Explainer: How middle-level banking staff is paying the price for digitalization-led growth

What will be the impact of digitalization on India’s economic growth?

According to the RBI, India has been at the forefront of the digitalization “revolution" through initiatives such as India Stack, unified payments interface (UPI) and “consent-based data sharing". The banking system has also contributed to the digital push by enabling direct benefit transfers. The central bank estimates the impact of digitalization on India’s economic output as measured by gross value added (GVA), under four scenarios: 

1) Business as usual. 

2) Only increase in capital investments 

3) Increase in capital as well as information and communication technologies’ (ICT) investments. 

4) ICT and capital investments, combined with investments in human capital. 

Investments in digital tech infrastructure can help India achieve real GVA growth (growth stripped of inflation) of 8.2% by 2030, according to the report. This is versus the current growth of 7.2% as of 2023-24. However, the central bank contends that India can achieve “maximum growth" only when labour reforms are also undertaken. Labour reforms can push India’s growth above 9%. “The investment-led growth path may lose momentum unless supported by reforms that focus on productivity, human capital and higher labour force participation," the RBI stated.

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How would digital push, though, affect the labour force in the financial sector?

The central bank states that with most clerical jobs in the financial sector facing automation, the low- and middle-tier jobs are being displaced by technology. This calls for greater investments in upskilling. Employees in support roles have decreased in India’s financial sector while the number of professionals/technicians have risen, mirroring a global trend, the RBI says. The share of support staff (e.g. customer service representatives) in the banking sector has steadily fallen in the past decade from 50% to 26% in 2022-23. The proportion of bank officers to support staff stands at 74:26 as of 2022-23.

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What solutions has the RBI proposed?

Financial institutions need to invest in digital upskilling of their staff, according to the report. “Digitalization may induce human resource challenges in the financial sector, necessitating strategic investments in upskilling and reskilling," governor Shaktikanta Das stated in his foreword to the report. The report also flagged some potential challenges in the skilling drive. These include adaptability of employees and management to imbibe new digital tools and high turnover rates in banks leading to loss of institutional knowledge once the employee exits the company.

Also Read: RBI’s jobs data has economists baffled, spurs a quantity versus quality debate

What is the situation world-wide?

Over the past decade, the global digital economy has grown 2.5 times faster than the physical world economy, accounting for over 15% of global GDP (United Nations, 2023). A report by investment banking major Citigroup released in June this year shows that the banking sector will be the hardest hit, with automation threatening 54% of human jobs. This is followed by insurance (48%) and software sector (36%). By 2028, the "profit pool" for the global banking sector could increase 9%, or $170 billion from the adoption of AI, rising from just over $1.7 trillion to close to $2 trillion, the report states.