India’s Sovereign AI Dream: Decoding The Market Opportunity, State Of Regulations

The AI revolution has grabbed the attention of every major economy worldwide, and even though India has signalled its intention to forge its own AI future, the path taken by Indian startups and the government will vary dramatically from the global superpowers.

In the race for AI supremacy, India finds itself at a crossroads — with startups urging the government to bring innovation balance along with regulation, promote talent along with investment, and temper ambition with pragmatism.

The question isn’t whether India can compete in the AI race, but rather what will be its unique approach and position against established leaders, tech giants and new competitors that will undoubtedly emerge in the future.

Inc42’s latest report, “India’s AI Uprising: GenAI, AI Agents & The Future Of Startups, Report 2025,” offers a detailed look at India’s current AI startup scene and how it stacks up against other countries.

High Ambitions, But Infrastructure Work In Progress: India vs The World

When it comes to the overall market opportunity, the Indian AI industry is valued at over $17 Bn and rapidly growing, but still trails behind the US ($243 Bn) and China ($152 Bn). The EU and UK combined have a market size of over $235 Bn. While these figures highlight the gulf between India and the rest of the world, there are deeper structural issues even as India has some distinctive competitive advantages.

One of the major issues is the lack of AI intellectual property and patents in India. As of 2022, India lags significantly with 140-150 patents in this domain, compared to China’s 35K+, the US’s 12K+, and the EU & UK’s 3.6K+. This disparity highlights the need for India to bolster its research and development efforts, a concern that has come up a number of times when it comes to the debate on deeptech and AI in India.

The access to the talent pool presents another intriguing dynamic when comparing these major AI economies of the world. As per our research, the number of notable ML models developed in India is less than 10, whereas China has 15+, the US has 61+, and the EU & UK have 17+. This indicates a need for India to enhance its innovation capabilities in machine learning.

Unsurprisingly, given the Silicon Valley’s AI movement, US-based AI engineers command median salaries of $130K+, while their EU counterparts earn $79K+. In stark contrast, Indian AI engineers earn $17K in median pay, which hints at both a challenge and an opportunity.

While companies see the obvious cost advantage, combined with India’s substantial technical talent pool for AI research and development operations, the lower median pay shows that high-level Indian talent can be easily attracted to overseas markets.

Finally, in terms of the infrastructure needed to power the AI revolution, India is well behind the bigger economies, a gap that needs to be plugged as soon as possible to make use of the deep talent pool. India has 152+ data centres, which is a modest tally compared to China’s 449+ and the US’s 5.4K+. The EU & UK combined have 2.3K+ data centres, reflecting the robust digital infrastructure to power AI compute and operations in these economies.

Access Free Report

Regulations & The Sovereign AI Dream

In our analysis of India’s regulatory readiness for the AI revolution, we decided to study the ground reality to see just how stringent India’s guidelines and rules actually are. This has culminated in a 10-grade strictness score, where the highest grade is given for economies that have very restrictive rules for AI innovation and development.

As we can see, India, like the US, UK, Canada, and Japan, has chosen a more moderate path with a strictness score of 5, whereas France and Germany have the highest strictness score.

Does this mean that India’s strategic decisions will mirror the American model of innovation-driven governance rather than the EU’s precautionary principle? There have been some statements from key stakeholders in this regard, such as from Abhishek Singh, the CEO of the IndiaAI Mission.

Recently, Singh said that regulations will be important, primarily to ensure that any AI application that is developed is compliant with India’s legal framework and the laws as they stand, whether it is the DPDP Act or other laws. “We are not inclined to have something like the EU. We are more inclined to promote innovation, but while having enough measures with the use of the existing legal provisions to prevent any harm that may take place,” the CEO added.

India’s approach suggests confidence in the market’s ability to self-regulate whilst maintaining government oversight for critical applications.

The EU’s AI Act, effective since August 2024, sets strict, uniform rules and restricts certain AI uses, earning a high strictness score. India and the US take a more flexible approach, focusing on concerns like deepfakes and bias, with a moderate strictness score.

The concept of sovereign AI models — though not well defined at the moment, as we have argued in the past — has gained traction across all major players, with every region recognising the strategic importance of domestic AI capabilities. For India, this translates into initiatives aimed at reducing dependence on foreign AI models and building indigenous alternatives that align with national priorities and cultural contexts.

The sovereign AI ambition extends beyond mere technological independence. It encompasses data sovereignty, algorithmic transparency, and the ability to shape AI development according to national values and priorities. India’s moderate regulatory stance provides the flexibility needed to pursue these objectives whilst maintaining an environment conducive to innovation and investment.

India’s Ascent To The AI Global Stage

Most economic and demographic indicators point to India’s AI ecosystem being on the backfoot compared to larger economic regions and geographies.

In recent months, the country’s focus on sovereign AI development has accelerated, and more and more government-backed funds and programs are looking to take innovation in the right direction.

However, to truly compete on the global stage, India needs to enhance its research and development capabilities, invest in data and computing infrastructure, and create a regulatory environment that balances innovation with ethical considerations, as has been made plainly evident by the nation’s weaker numbers in this context.

There’s little doubt that to truly unlock success at a global stage, India has to address these critical gaps which can hinder its sovereign AI ambitions. The talent cost advantage, whilst beneficial for attracting investment, must evolve into something more meaningful that can drive economic output and outcomes.

Looking ahead, India’s moderate regulatory framework will be critical too as this gives the blueprint for companies to tailor their innovation in the right direction. While the substantial technical talent and growing market for AI consumers positions India well to capture a larger share of the global AI economy, the challenge lies in converting these structural advantages into breakthrough innovations.

Access Free Report

Note: Parts of this article were generated with the assistance of AI. The Inc42 team has verified the facts and edited the content.