India is emerging as a significant player in the global artificial intelligence (AI) landscape, aided by substantial investments from major tech firms. This week, Amazon and Microsoft announced a combined investment exceeding $50 billion in India, with a particular emphasis on bolstering AI capabilities. Microsoft’s CEO Satya Nadella revealed the company’s largest investment ever in Asia, totaling $17.5 billion, aimed at fostering the infrastructure, skills, and sovereign capabilities needed for India’s AI-driven future. In tandem, Amazon committed over $35 billion by 2030, with a portion earmarked for enhancing AI capabilities.
These announcements come at a critical time, as concerns about a potential AI bubble have overshadowed global markets and tech stock valuations. Notably, several leading financial institutions have adopted a contrarian view of India’s AI sector. Christopher Wood from Jefferies termed Indian stocks a “reverse AI trade,” suggesting that India could outperform other markets if the global AI bubble were to burst. Similarly, HSBC emphasized that Indian equities present a “hedge and diversification” for investors wary of the ongoing AI rally.
The stock performance in Mumbai has lagged behind its Asian counterparts over the past year, leading foreign investors to funnel billions into AI-driven tech companies in regions like Korea and Taiwan. In this context, the investments from Amazon and Microsoft could provide a vital boost, yet the question remains: where does India truly stand in the global AI race?
As India’s adoption of AI accelerates, investment is beginning to flow into critical segments of the value chain, including data centers and chip manufacturing. Notably, Intel recently announced a collaboration with Tata Electronics to manufacture chips locally in Mumbai, marking a significant step toward enhancing the country’s technological infrastructure. However, when it comes to developing an autonomous AI model, experts suggest India is still playing catch-up. Nearly a year and a half ago, the Indian government launched an AI mission, supplying start-ups, universities, and researchers with high-performance computing chips to develop a homegrown AI model akin to OpenAI or DeepSeek.
The federal electronics ministry has indicated that the launch of the sovereign AI model, which supports over 22 languages, is imminent. Yet, as companies like OpenAI and DeepSeek continue to advance, India’s $1.25 billion initiative stands in stark contrast to the multi-billion-dollar programs in places like France and Saudi Arabia. Furthermore, challenges such as semiconductor shortages, skilled talent deficits, and fragmented data ecosystems continue to hinder progress, as highlighted by global consultancy EY.
Despite its strengths in AI talent—with a concentration of AI-skilled professionals 2.5 times higher than the global average—India faces hurdles in retaining its developers. The recent tightening of overseas work visas may offer an opportunity for India to retain domestic talent and attract those of Indian origin back home. However, experts caution that attractive policy incentives are essential to encourage relocation, especially given that top-tier AI talent is highly mobile. In contrast, China provides a range of incentives, including financial support, tax breaks, and special talent visas.
While India ranks among the top countries for new companies receiving AI investments, the scale of funding remains significantly lower than in the U.S. Last year, only 74 new Indian AI startups received funding—compared to over 1,000 in the U.S.—with Indian AI startups raising just $1.16 billion privately against over $100 billion in the United States and nearly $10 billion in China. Nonetheless, the country accounts for 9.2% of global AI publications, indicating robust intellectual engagement with the field.
Experts believe India’s strength may not lie in creating large-scale language models but rather in leveraging existing models to drive entrepreneurship. Shailendra Singh, managing director of Peak XV Partners, noted that while the concentration of AI activity is presently in the U.S., over the next five to ten years, AI is expected to democratize the creation of new companies, fostering significant growth in regions like India and the Asia-Pacific. Singh added that India is witnessing a surge in AI-powered consumer applications, with investments in AI startups doubling from the previous year.
Moreover, many Indian startups are utilizing AI to address real-world challenges, exemplified by MahaVISTAAR, an AI app developed by the Maharashtra government that delivers crucial agricultural information in Marathi, reaching over 15 million farmers. Nandan Nilekani, architect of India’s biometric program, emphasized that if AI can effectively serve the needs of India’s classrooms, clinics, and farms, it could have a transformative impact globally.
However, the rise of AI also poses risks to India’s IT services sector, which has driven economic growth and employment for three decades. As AI reshapes business functions, India’s billion-dollar IT firms may face vulnerabilities. The slowdown in growth within IT back offices is already evident, with underperforming stocks, reduced hiring, and stagnant wages highlighting the looming threat of disruption.
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