CEA urges proactive AI safeguards in financial sector, warns against exclusion

Chief Economic Adviser V. Anantha Nageswaran has called for a proactive approach to artificial intelligence safety and security, particularly within the financial sector. Speaking at the ASSOCHAM FinTech Festival in New Delhi, he cautioned that while AI offers significant advantages, it must not become a tool for exclusion, and human oversight must remain central.

"We have to be very proactive in the safety and security aspect of AI," Nageswaran said, adding that the temptation to leverage technology gains should not come at the cost of existing safeguards. He stressed that "humans in the loop have to be kept always safe."

Nageswaran acknowledged that AI can help financial firms assess creditworthiness more effectively and identify risks of default or financial stress at earlier stages. However, he warned that its deployment should not create new forms of exclusion, stating, "It's important to ensure that AI doesn't become a tool or a filter for exclusion."

Looking ahead, the Chief Economic Adviser noted that the next two decades will be considerably more challenging than the previous 30 years since economic reforms began in 1991. He pointed to structural shifts in climate, technology, geopolitics, and the weaponisation of various capabilities as key drivers of this difficulty.

"The next 20 years will not be the same as the previous 30 years since the reforms began in 1991. They will be much harder," he said, urging both the public and private sectors to "up our game substantially."

On cross-border payments, Nageswaran said that growth in underlying trade in goods and services would be more important for sustainably expanding payment flows than focusing on payment infrastructure alone. He described regulatory architecture and technology as necessary preconditions, but said payment activity would ultimately evolve with the size and flow of economies.

Discussing fintech, Nageswaran described it as an enabling sector that allows other parts of the economy to adopt technology. He noted that fintech firms typically operate with limited capital compared to well-capitalised incumbents, making their impact most visible in areas like SMEs, self-employed borrowers, and retail personal finance.

He also cautioned against making the size of fintech or financial-sector activity a standalone policy target relative to GDP, arguing that financial activity should follow the growth of the real economy. "When we end up putting the cart before the horse, the finance cart before the real economy horse, then it doesn't serve either," he said.

Nageswaran further highlighted the need to focus on the physical and mental health of India's young population over the next 20 years, alongside skilling and education. He also stressed the importance of state capacity, particularly the ability of governments to make decisions faster, as a key requirement for sustaining growth.