This site uses cookies for analytics and to improve your experience. By clicking Accept, you consent to our use of cookies. Learn more in our privacy policy.
India is a hedge against the global AI bubble, some experts say [NurPhoto via Getty Images)]
This week, tech giants Amazon and Microsoft pledged an eye-popping $50bn-plus combined investment in India, putting artificial intelligence (AI) in the spotlight.
Microsoft’s Satya Nadella announced his company’s largest investment ever in Asia – $17.5bn (£13.14bn) – “to help build the infrastructure, skills, and sovereign capabilities needed for India’s AI-first future”.
Amazon followed suit, and said it was putting in more than $35bn in the country by 2030, with an unspecified chunk of that investment going into boosting AI capabilities.
The announcements come at a particularly interesting juncture.
As fears of an AI bubble swept global markets and tech stock valuations soared, several leading brokerages took a contrarian view on India’s AI landscape.
Christopher Wood of Jefferies said the country’s stocks were a “reverse AI trade”. That basically means India should outperform other markets in the world “if the AI trade suddenly unwinds” – or simply put, the global bubble bursts.
HSBC also held a similar view, saying Indian equities offered a “hedge and diversification” for those uneasy with the ongoing AI rally.
This comes as Mumbai stocks have lagged behind their Asian peers over the past year, with foreign investors moving billions into Korean and Taiwanese AI-driven tech companies in the absence of comparable opportunities in India.
In this backdrop, the Amazon and Microsoft investments provide a much-needed fillip – yet it remains worth asking where India truly stands in the global AI race.
India ranks among the top globally in terms of AI talent and developer activity [AFP via Getty Images]
There are no easy answers.
The adoption of AI in India has been rapid. Investments into some parts of the value chain – such as data centres, the physical backbone of AI, or chip-making facilities – have begun trickling in. Just this week, American chipmaker Intel announced a collaboration with Mumbai-based Tata Electronics to manufacture chips locally.
But when it comes to a sovereign AI model, it appears India is continuing to play catch-up.
About a year-and-a-half ago, the Indian government launched an AI mission through which it began supplying start-ups, universities and researchers with high-end computing chips to develop a large homegrown AI model like OpenAI or China’s DeepSeek.
According to the federal electronics ministry, the launch of the sovereign model – which supports more than 22 languages – is imminent. In the interim though, the likes of DeepSeek and OpenAI have made further advances, launching newer variants.
While the government has recognised the need to reduce over-dependence on foreign platforms because of the risk of surveillance and sanctions, India’s $1.25bn sovereign mission is a shadow of France’s $117bn or Saudi Arabia’s $100bn programmes.
The country’s ambitions also face numerous other hurdles – from semiconductor availability to skilled talent and fragmented data ecosystems, according to global consultancy EY.
India currently lacks enough computational infrastructure or the billions of dollars of research and development (R&D) investment made over decades that gave China and the US a distinct leg up.
Despite its global strength in AI talent, India struggles to keep its developers at home.
“The current tightening of overseas work visas provides India a window of opportunity to retain domestic talent and attract Indian-origin talent at home. However, given that top-tier AI talent is mobile globally, attractive policy incentives need to be put in place to incentivise relocation to India,” the EY report says.
China, for example, offers a range of incentives such as “financial support and subsidies, tax incentives and funding for research and development, special talent visas and fast-track immigration”, the report says.
India has a much higher concentration of AI-skilled professionals than the global average – specifically, 2.5 times more. Policies that retain this talent are not yet in place.
India has been attracting billions of dollars of investments into data centres [Bloomberg via Getty Images]
Yet, despite the challenges, India – along with countries like Brazil and the Philippines – punches above its weight in AI, especially in the context of its stage of economic development, an UNCTAD (United Nations Conference on Trade and Development) study said.
According to the widely tracked Stanford AI Index 2025, the country ranks among the top five in the world on new companies receiving AI investments.
Last year, 74 new Indian AI startups received funding – a fraction of the more than 1,000 funded in the US.
Indian AI startups raised just $1.16bn privately, compared with over $100bn in the US and nearly $10bn in China.
But there’s enough intellectual engagement with AI in India, with the country accounting for 9.2% of AI article publications – slightly more than the US, but behind Europe and China according to the Stanford AI Index.
Experts say India’s AI edge may lie less in building costly language models and more in using them downstream to spur entrepreneurship.
“I think in the short term, there’s this big concentration of AI in the US. But over the next five-10 years, AI will have a massively democratising effect on the creation of new companies. Small founders and entrepreneurs will be numerous and the downstream effect will be amazing for places like India and the Asia-Pacific,” Shailendra Singh, managing director of Peak XV Partners which invests in AI start-ups, told the BBC.
Mr Singh says India is seeing a surge in AI-powered consumer apps, with AI startup investments doubling from last year.
Moreover, many Indian startups are now using AI to tackle real-world challenges for millions still on the wrong side of the digital divide.
For example, MahaVISTAAR, an AI app run by the Maharashtra government, delivers vital agricultural information in the local Marathi language, reaching over 15 million farmers.
“The hardest places to make artificial intelligence work are also the places where it matters most. If AI can serve India’s classrooms, clinics and farms, it can serve the world,” Nandan Nilekani, the architect of India’s biometric programme, wrote in The Economist magazine last month.
Some of that has already begun to happen, as apps like MahaVISTAAR and others have shown.
AI brings new opportunities, but could disrupt India’s IT services sector, which has driven its economy and created millions of jobs over the past 30 years.
As AI upends some of their business functions, India’s billion-dollar IT firms will become a key area of “vulnerability”, according to Jefferies.
That vulnerability is already showing.
Growth in India’s IT back offices is slowing, stocks are underperforming, hiring has shrunk and wages have stagnated as the spectre of a new disruptor looms large.
