Business

Raghuram Rajan pitches AI tax amid ‘jobocalypse’ fear

By Sohail Khan 20 August 2026, 12:34 pm

Benchmarks
Nifty24,209.70131.41

FEATURED FUNDS★★★★★

Motilal Oswal Midcap Fund Direct-Growth

5Y Return
23.26 %

Invest Now

Enter search text:

Business News›News›Company›Corporate Trends›Raghuram Rajan pitches AI tax idea for govt coffers amid ‘jobocalypse’ fears

Read Today's Paper

Raghuram Rajan pitches AI tax idea for govt coffers amid ‘jobocalypse’ fears

Synopsis

Raghuram Rajan proposes taxing artificial intelligence usage by corporations. This tax aims to offset the financial advantage machines currently hold. Companies would also receive incentives for retraining and retaining their employees. AI adoption is expected to increase due to competitive pressures over time. The focus remains on managing the transition and supporting affected workers.

Listen to this article in summarized format

Loading…
×
×

Unlock AI Briefing and Premium Content

New Year Offer 24 Hours Left
Already a member? Sign In

What's Included

Exclusive Stories
Daily ePaper Access
Smart Market Tools
Curated Investment Ideas
Ad-lite Experience
Subscription

Raghuram Rajan on AI tax — Raghuram Rajan

Raghuram Rajan, former Reserve Bank of India governor, has pitched an AI tax idea that suggests companies may have to pay more every time they use artificial intelligence to replace work done by a person.

In a recent Project Syndicate column titled "How Corporations Can Mitigate an Al Jobocalypse", Rajan suggested that governments could tax the AI “tokens” companies use and use incentives to encourage businesses to retrain and retain employees.

The idea is not to stop companies from using AI. It is to address what Rajan sees as a tax advantage for machines.

India’s workforce is using AI, but just 20% are building with it: Report

Why does Rajan want an AI tax?

Rajan's argument starts with an imbalance.

When a company employs a person, it may have to pay social-security contributions and other employment-related costs. When it uses AI instead, there is no equivalent charge on the technology.

“A US firm contributes social-security payments for every worker, but not for AI,” he wrote.

That, according to Rajan, can make automation financially more attractive even when the broader economic cost of job displacement is taken into account.

You Might Also Like:

AI won’t create India’s jobs crisis, but it could deepen it

His proposal is to start with a relatively low tax on AI usage and increase it gradually as governments learn more about how the technology affects employment. Foreign AI companies would also need to be included in the system.

"The precise tax rate will need to be calculated carefully to avoid impeding Al deployment, but it can be set low initially and then gradually raised with experience. While payments to domestic Al providers can be tracked easily, foreign providers would also have to be brought into the net; but this is not an insoluble problem," Rajan wrote.

AI jobocalypse is coming, but Rajan says pace matters

Rajan is not predicting that AI will suddenly wipe out millions of jobs. In fact, his argument is that the pace of adoption matters just as much as the technology itself. "Al-related job displacement is coming, though no one knows how fast it will proceed, how far it will go, and which sectors it will affect most. Much depends on the pace at which individual firms apply the technology to their operations," he said in his opening lines of the article.

He cited a US Census Business Trends and Outlook Survey showing that only 20% of firms with more than 20 employees were using AI. Even among companies with at least 250 employees, the figure was 37%.

Also Read: AI doomsday scenario? Ex-RBI Guv Raghuram Rajan says India’s services sector will be disrupted, not derailed

Many businesses are still testing AI, figuring out how to integrate it into existing workflows and trying to understand the cost.

That does not mean adoption will remain slow. Rajan expects competitive pressure to eventually force companies to use AI more extensively.

He made a similar point about India's services industry earlier this year. “The Indian services story can still persist in many other areas outside of software, but yes, AI will be a challenge,” Rajan had said in a Bloomberg Television interview in February.

"Things take time. The firms that are not technology-savvy will take more time. That is it," said Rajan.

He also warned against getting carried away by the most extreme predictions about AI.

“Let’s not get overly wound up in science fiction and think that is the outcome,” he said.

For India, that suggests the impact on jobs could depend not just on how quickly AI improves, but on how quickly companies adopt it.

View this post on Instagram

India's IT sector has more time to adapt

India's software and IT services industry is particularly exposed to AI because much of its business has traditionally relied on human-intensive technology and back-office work.

But Rajan sees India's cost advantage as a potential buffer.

“The reason many firms are moving to India is because of its highly skilled service people,” he said, noting that a consultant in India can cost “one-fifth the price of a consultant in the West.”

That makes reskilling particularly important for Indian companies and workers as AI changes the nature of technology jobs.

Rajan has said they will need to retool “really fast”, but added that “this is not something they cannot overcome.”

Rajan's other idea: Pay companies to retrain workers

An AI tax is only one part of Rajan's proposal.

He also wants companies to have a stronger incentive to retrain employees whose jobs are changing because of technology.

“Recognizing that the first round of AI displacement will not be the last, it will be even more valuable to get firms to retrain workers periodically, and to retain workers whenever possible,” he wrote.

Rajan suggested tax credits for additional training, with the benefit linked to how long the worker remains employed after receiving that training.

That could change the way companies look at reskilling. Instead of training workers only when a new technology arrives, businesses could make continuous retraining part of the employment model.

AI could create jobs too

Rajan's argument is not that AI will only destroy jobs.

If companies use AI to become more productive, they could lower prices, sell more and create additional demand for workers.

AI could also make it cheaper to start businesses by handling functions such as accounting and programming that previously required hiring specialists.

And workers with moderate skills could use AI to take on more complex tasks.

Rajan cited economist David Autor's example of a nurse practitioner using medical AI to diagnose and treat a wider range of illnesses.

That could open up new opportunities in sectors where demand remains strong.

The real AI debate is about the transition

For Rajan, the AI jobs debate is not only about how many jobs machines might take. It is also about what happens to the people behind those jobs — and whether companies are willing to help them make the switch.

“More important than tax incentives, however, will be firms' acknowledgement that they are fully engaged in helping their employees cope with an uncertain future,” Rajan wrote.

Rajan also sees a business benefit for companies that support workers through the transition: a stronger reputation could help them attract a wider pool of high-quality candidates.

Add as a Reliable and Trusted News Source
Add Now!

(You can now subscribe to our WhatsApp channel)

(You can now subscribe to our WhatsApp channel)

Read More News on
Raghuram Rajan AI taxAI job displacementartificial intelligence taxationAI impact on employmentIndia's IT sector AIAI tokens taxretraining employees AIjobocalypse fearsAI productivityraghuram rajan news

Enter search text:

Continue reading with one of these options:
Limited Access
Free
Login to get access to some exclusive stories

& personalised newsletters
Login Now

Unlimited Access
Starting @ Rs120/month
Get access to exclusive stories, expert opinions &

in-depth stock reports
Subscribe Now

Unlock Access to All Exclusives with ETPrime FREE TRIAL

15 Days Free: Unlock All ETPrime Exclusives, Market Tools & ePapers

Trial offer expiring in00 : 05 : 00

I'd rather pay ₹2599 now

Uh-oh! This is an exclusive story available for selected readers only.

Worry not. You’re just a step away.

Prime Account Detected!

It seems like you're already an ETPrime member with

Log out of your current logged-in account and log in again using your ET Prime credentials to enjoy all member benefits.

Unlock ETPrime's Exclusive Stories Today!

Subscribe to gain powerful insights on business, stock market and industry trends.

Big Price Drop! Flat 40% Off

Student Only Offer

Already a Member? Sign In now

Already a Member? Sign In now
Already a Member? Sign In now

Offer Exclusively For You

Save up to Rs. 700/-

ON ET PRIME MEMBERSHIP

Avail Offer

Offer Exclusively For You

Get 1 Year Free

With 1 and 2-Year ET prime membership

Avail Offer

Offer Exclusively For You

Get 1 Year Free

With 1 and 2-Year ET prime membership

Avail Offer

Offer Exclusively For You

Get Flat 40% Off

Then ₹ 1749 for 1 year

Avail Offer

Offer Exclusively For You

ET Prime at ₹ 49 for 1 month

Then ₹ 1749 for 1 year

Avail Offer

Special Offer

Get flat 40% off on ETPrime

Avail Offer
Avail Offer

Claim NowAlready a Member? Sign In now

Need Assistance?

Connect with an ETPrime expert for personalized support and guidance

+91 9484700004

' + h3 + '

' + h4 + '

' + listing + '

What’s Included with

ETPrime Membership

1Exclusive Insights That Matter

Uncover the truth with our investigative stories

Make strategic moves using the real-world case studies

Read industry-specific stories to identify emerging trends

Spot opportunities with in-depth insights that matter

Trump temper on H-1B visas is forcing Indians to do these things to stay put in US

What Adani’s US indictment means for India Inc’s overseas fundraising
Why veterans like Reliance, L&T are on acquisition spree? Aswath Damodaran has an answer.

Will China’s dollar bond sale in Saudi Arabia trump the US in financial world?
Huawei launches its own OS to compete with Google and Apple. But can it win beyond China?

The problem with lab grown diamonds
Why a falling rupee is a better option for the economy

A list of top 20 momentum stocks that have delivered massive returns in one year