The steps that will shape India’s AI ambition

‘Indian IT services and consultancies held back by AI regulations run the risk of losing their hold of the global market’
| Photo Credit: Reuters

In the heart of Bengaluru, software developers find themselves racing against time to outbid Chinese rivals for major Artificial Intelligence (AI)-driven projects with international clients. Despite being part of a skilled workforce, deals often slip away due to capabilities Indian firms struggle to match. This is not just a single developer’s dilemma. It is a glimpse into India’s crossroads.

Faced with a three-way race to catch up with Silicon Valley while being chased by China and South East Asia, India is being subject to rigorous competition. But, if it wants to prevail at the forefront of the AI race, India must recognise that the challenge lies not in whether businesses prefer a local or foreign AI platform but in whether market regulations will inadvertently stifle India’s momentum.

The issues in India

Export competitiveness hinges on the nationwide deployment of productivity-enhancing technologies. Indian services and consultancies must incorporate AI technologies to maintain their lead position in the global market. But concerns remain over the massive loss of routine jobs, discriminatory algorithmic decision-making, and the negative risks of human impersonation. In particular, “deepfakes” undermine trust by spreading misinformation, and destabilise political processes eroding credibility rapidly.

AI adoption issues such as misinformation and intermediary liability are at the forefront of the AI discussion in India, as digital platforms have become primary conduits for information dissemination. The general opinion among startups in India is that intermediaries — usually foreign tech giants — often set the rules of engagement, making it challenging for local startups to compete.

Tension has increased since, with recent Indian app developers filing a complaint against Google before the Competition Commission of India. But, putting regulatory and administrative pressure on those companies will not necessarily resolve the core problem of monopolistic business practices. Regulating AI will interfere with technological adaptation, which will have undesirable consequences on India’s relative competitiveness.

India has already localised a significant portion of the AI value chain, and additional AI-related compliance costs may hamper India’s ability to outpace commercial rivals such as China and the United States, which have decided to leave AI unregulated.

Navigating the global AI race

India’s position as the world’s IT powerhouse gives it a unique advantage in the AI era. Attempts to govern and regulate AI occur as industrialised nations compete globally for industrial leadership. The European Union (EU) opted for strict regulation to address risks and societal impacts. In contrast, the U.S. maintains a more hands-off stance, prioritising innovation. India finds itself in a delicate balancing act between these two paths. But the sooner misconceptions about quickly outdated market rules addressing a limited set of hypothetical risks are set aside, the better India can focus on outpacing commercial rivals such as China and the U.S.

There are very good reasons why the EU has chosen to legislate through binding laws, mainly due to its unique structural deficiencies. The EU lacks a supranational constitution that safeguards human rights and protects citizens against AI-based surveillance or policing by its member-states. Therefore, unlike India, the EU must enact binding rules to pre-empt AI laws by national governments that will otherwise fragment its single market.

Additionally, the costs of regulatory failure are too high if India’s exporting capabilities are at stake, particularly given Chinese dominance in hardware and cloud technologies. India has previously taken inspiration from EU or U.S. laws. However, it must follow its own paths and pursue its national interests based on its services-driven industrial profile.

Introducing regulatory attempts that can impede AI development in India may allow businesses to repatriate from India and relocate IT development and software research and development to other countries with more AI-friendly rules. In other words, Indian IT services and consultancies held back by AI regulations run the risk of losing their hold of the global market.

Instead, the Indian government can use its diplomatic influence to ensure that open-source models remain open, accessible, and commercially viable, paired with international strategic partnerships for energy security, computing resources, and international standardisation.

A case for regulatory clarity

Building on the expected strong adoption of AI, public officials have a responsibility to listen to political and social concerns. While India is not explicitly pursuing ex-ante product regulation on AI akin to that in Europe (or previously planned in California), various agencies have launched conflicting policies, resulting in a minor power struggle that resulted in a fragmented policy landscape.

Lessons learnt from the EU and the U.S. point to the need to strengthen and future-proof existing laws rather than produce new ones. Current transitional guidelines have shown a feasible pathway to avoiding overlapping liability or regulatory blindspots by re-interpreting existing legislation. India has a comprehensive framework for antitrust, corporate liability, free speech, and public order that covers AI development and use cases. India may not need AI-specific rules legislation such as the IT Act.

India must choose its own path according to its national interests. The challenge lies not in whether businesses prefer a local or foreign AI platform but in encouraging rapid adoption and supporting open-source and other alternatives accessible for fine-tuning and transferring learning in its IT industry.

Badri Narayanan Gopalakrishnan is Visiting Senior Fellow, the Centre for Social and Economic Progress (CSEP), New Delhi. Hosuk Lee Makiyama is the Director of the European Centre for International Political Economy (ECIPE). The views expressed are personal

Published – March 01, 2025 12:08 am IST

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