“India IT services and consultants being curbed by AI regulations risk losing global markets” | Photo credit: Reuters
In the heart of Bengaluru, software developers find themselves hostile to time outperforming their Chinese rivals due to major artificial intelligence (AI)-led projects with international clients. Trades often run away due to the ability of Indian companies to struggle to match despite being part of a skilled workforce. This is not a single developer dilemma. It’s a glimpse of the Indian intersection.
Faced with a three-way race to catch up with Silicon Valley while chased by China and Southeast Asia, India is subject to tough competition. However, if they want to win at the forefront of AI races, India must recognize that the challenge lies not in whether companies prefer local platforms, but whether market regulations will incorrectly curb India’s momentum.
India’s problem
The competitiveness of exports depends on the nationwide deployment of productivity-enhancing technologies. Indian services and consultants need to incorporate AI technology to maintain their key position in the global market. However, concerns remain about the massive loss of everyday work, discriminatory algorithmic decisions, and negative risks of human impersonation. In particular, “deepfake” derails trust by spreading misinformation and destabilizes political processes that rapidly erode credibility.
As digital platforms have become the main conduit for information dissemination, issues of AI adoption, such as misinformation and intermediary responsibility, are at the forefront of the AI debate in India. The general opinion among Indian startups is that intermediaries (usually foreign tech giants) often set rules of engagement and challenge local startups to compete.
Tensions have risen since then, with Indian app developers recently filing complaints against Google before the Indian competition committee. However, putting regulatory and administrative pressure on these companies does not necessarily solve the core issues of monopolistic business practices. Adjusting AI impedes technical adaptation. This has undesirable results for India’s relative competitiveness.
India has already localized most of its AI value chain, and adding AI-related compliance costs could hamper India’s ability to outweigh its commercial rivals such as China and the US, which have decided that AI is not regulated.
Navigating the Global AI Race
India’s position as the world’s IT powerhouse offers unique advantages in the AI era. Attempts to manage and regulate AI arise as industrialized countries compete globally for industrial leaders. The European Union has chosen strict regulations to address risks and social impacts. In contrast, the US maintains a more handoff stance and prioritizes innovation. India is dressed in a delicate, balanced act between these two paths. However, faster misconceptions about rapid, outdated market rules that address a limited set of hypothetical risks are put aside, allowing India to focus on outperforming its commercial rivals such as China and the US.
There is a very good reason why the EU chose to legislate through binding laws, primarily due to its unique structural flaws. The EU lacks a supranational constitution that protects human rights and protects citizens from AI-based surveillance or police by its member states. So unlike India, the EU must enact rules that are binding on the preemptive laws of AI laws by the central government, which otherwise fragment its single market.
Furthermore, especially given China’s domination of hardware and cloud technology, the cost of regulatory breakdowns is too high if India’s export capabilities are at stake. India has previously been inspired by EU or US law. However, it must follow its own path and pursue national interests based on its service-driven industrial profile.
By introducing regulatory attempts that could hinder AI development in India, companies can repatriate from India and relocate IT and software research and development to other countries with more AI-friendly rules. In other words, Indian IT services and consultants, which have been curbed by AI regulations, are at risk of losing the global market.
Instead, the Indian government can use diplomatic influence to allow open source models to be open, accessible, commercially viable and combined with international strategic partnerships for energy security, computing resources and international standardization.
Cases for clarity of regulations
Based on the expected strong AI adoption, civil servants are responsible for listening to political and social concerns. India has not explicitly pursued original product regulations on AI similar to that of Europe (or previously planned in California), but various agencies have launched conflicting policies, resulting in minor power struggles that have resulted in fragmented policy landscapes.
Lessons learned from the EU and the US point to the need to strengthen existing laws and in the future, rather than creating new laws. Current transition guidelines illustrate viable pathways to avoid overlapping liability or regulatory alarm spots by reinterpreting existing laws. India has a comprehensive framework of antitrust laws, corporate liability, freedom of speech and public order that covers AI development and use cases. India may not require AI-specific regulations such as IT law.
India must choose its own path according to national interests. The challenge is not to whether companies prefer local or foreign AI platforms, but to support rapid adoption and open source and other alternatives that they have access to to fine-tune and transfer learning in the IT industry.
Badri Narayanan Gopalakrishnan is a visit to Senior Fellows at the Centre for Social and Economic Progress (CSEP) in New Delhi. Hosuke Lee Makiyama is the director of the European Centre for International Political and Economics (ECIPE). Claudia Lozano Rodríguez is a legal analyst at the European Centre for International Political and Economics in Brussels, specializing in international trade, digital economy, technology and EU-ASEAN relations. Her career includes previous positions at the Spanish Ministry of Digital Transformation and Civil Service, as well as at the European Commission. The view expressed is personal
Published – March 1, 2025 12:08 AM IST
