An Indian strategy for AI

by Siddharth Raman and Ajay Shah
Business Standard, 22 June 2026

Anthropic, an American AI company, was recently forced by the US government to keep access to its latest model Fable away from non-Americans. Some in India are now demanding a "sovereign" AI model. Does India need its own large language model? Should government funds be allocated towards this cause? We are skeptical; we think such proposals are just industrial policy.

The instinctual panic is understandable. Nobody wants to be locked out of the technology race. But a gap between Indian knowledge and the global frontier is hardly new. Most great milestones of knowledge -- the transistor, the Internet or Unix -- were not invented here. The Indian Tejas uses an American jet engine. With infusions of public money, some low-end hardware work on semiconductors has started in India, which we expect will induce the usual industrial policy outcome.

Indian firms are world-beaters in IT services. But blaming Indian IT services for not investing in LLMs is like chastising IndiGo for not manufacturing jet engines. Indian IT services companies have trained over a million Indians how to use the technology invented in the West to serve customers worldwide. They managed this without being on the global knowledge frontier. At every step of the great Indian services exports miracle, there was the danger of nationalist or industrial policy demands for sovereign CPU, sovereign operating system or sovereign hard disks. Indian policy makers did globalisation correctly in that period: Indian IT services firms imported Western tech, exported software and services, and generated an economic miracle for India.

Foreign export controls are not new either. The US blocked the sale of a Cray supercomputer for weather forecasting in the late 1980s. In the 1990s, they treated strong encryption as a weapon and hauled the author of PGP through a criminal investigation. In 1999, it reclassified commercial communication satellites as munitions. The same mechanism now caps sale of advanced GPUs to China (something that we in India should be grateful for). None of this interfered with our objective in India, of achieving high economic growth.

What is new with LLMs is that access to a novel technology has been put into the hands of normal citizens. Millions have access to the latest tech, almost immediately along with their global counterparts. This feels exciting. A privately funded AI revolution seeking customers globally has led to a new generation of enthusiasts. This has helped create more noise in this field as compared with (say) US export controls on CNC lathes.

Indian firms will not be harmed by not having access to frontier models. These models are expensive, burning thousands of dollars of tokens in a few hours. One of us is building TheProfesseer, where LLMs are used to provide litigation analytics, which requires processing millions of Indian court orders. The scale demands cost efficiency, through using older models, open-source models, etc. Whether we think about serving foreign customers, or building in India, having the latest models are not the bottleneck. Indian firms have plenty else to do, in harnessing the AI revolution.

The defence argument favouring `sovereign AI' is weak. We buy most of our defence equipment. It is possible to say: We want a military drone where every single component is made in India [link]. The cost would be prohibitive, and there is a high risk of such military drones losing battles to Chinese rivals. It makes more sense to collaborate with our allies -- Europe, Japan, South Korea, Taiwan -- who have the exact same objective (military drones that are fully safe from Chinese backdoors or supply chain vulnerability). We pursue the Indian interest better through the tools of compromise, deal-making and alliances, rather than doing sovereign AI. We pursue the Indian interest better by compartmentalising the defence aspects of AI from the civilian economy. When Infosys builds AI systems for J P Morgan, we do not have to solve for J P Morgan's access to chips or services in the US.

The triumph of the US in AI did not happen through even a hint of sovereign AI. The word `sovereign AI' is only used by people who don't do AI innovation. The greatness of the US is that Anthropic, Google and OpenAI are just private companies, who innovated on their own steam, backed by the world's greatest financial system. These three firms emerged as winners out of a race where 1000 firms tried to compete, and 997 of them failed. What worked in the US was the financial system and the innovation system, not sovereign AI.

Industrial policy is unable to engage in such a process of discovery. Industrial policy will never match the energy and risk taking of private people. It will translate coercive and financial inputs into poor outcomes owing to low state capability in India. It will get hijacked by domestic political economy. It is irrelevant owing to the tiny resource envelope of the Indian state.

What then should the Indian state do in the field of AI? We suggest a National AI Leadership Policy comprising four elements:

  1. The contribution of the Indian state for the IT miracle was in human capital building. At sites like the IITs, NCST, Ernet, IISc, etc., the Indian state invested in hundreds of researchers. They were the seed corn of the people who built the Indian IT miracle. We should invest in such human capital initiatives.
    Our thinking on innovation policy has since improved: we now know how to better translate public money into gains for the country. Mashelkar, Shah and Thomas, 2024 have proposed innovation policy organised around public money sent into private universities and private firms (as opposed to state universities only).
  2. A full review of frictions in buying IT equipment and overseas services is required, so that it becomes effortless for anyone in India to plug into the world with free use of credit cards, cross-border payments, e-commerce purchases, etc. We need full convertibility on the current account.
  3. Finance is the brain of the economy. Financial sector reforms are required to drive risk-taking by private firms who will then find their place in the global AI supply chain. We need full convertibility on the capital account, so that the vast resources and knowledge of the global financial system reshapes how Indian firms think about business strategy in the AI age.
  4. Partner with our allies to get world class defence equipment that is untainted by China.

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