From IT’s future to labour dynamics, Survey flags uncertainties as AI evolves
New Delhi: The Economic Survey has identified a series of “looming uncertainties” and structural imbalances in the rapidly evolving artificial intelligence ecosystem, warning that the distribution of power, resources, and capabilities in the sector could pose challenges for India’s economy, labour market, and technology services industry.
According to the Survey, India begins its engagement with artificial intelligence from a position that includes several advantages, but it also faces notable constraints. Access to advanced computing infrastructure remains limited, and the financial capacity required to train large-scale AI models is significantly lower than that of global frontrunners. As a result, positioning the development of foundational AI models as the core of India’s strategy would be “challenging”, the document stated.
Rather than prioritising frontier-scale model development, the Survey called for a bottom-up pathway that reflects domestic economic conditions. It argued that economic value from artificial intelligence does not need to be concentrated among a small group of global firms or models. Instead, it supported the development of smaller, application-focused systems designed to meet specific sectoral and operational needs.
The Survey noted that the global AI ecosystem is increasingly characterised by concentration of power, with a limited number of international entities controlling key inputs such as data, computing capacity, and foundational models. This concentration, it said, raises concerns related to market dominance, reliance on external technologies, and vulnerabilities within global supply chains. Labour market outcomes were identified as another area of uncertainty. While early evidence has offered some reassurance for countries like India in the short term, the Survey cautioned against assuming that existing trends will persist. “All in all, caution is still warranted as India attempts to solve the puzzle of AI and labour. This represents one of the most considerable looming uncertainties about the technology,” it said. The document also highlighted potential implications for India’s information technology sector. It warned that firms which historically depended on India’s comparative advantage for large portions of their operations may reduce that dependence as AI capabilities advance. “It also raises a substantial question about the future of India’s IT sector, as firms that once relied on India’s comparative advantage to handle a bulk of their work may no longer need to do so,” the Survey said. If adaptation to these changes is delayed, the Survey warned, India risks a “hollowing out” of its traditional value proposition in the global IT services market. Sustaining competitiveness will require broad-based transformation that fully integrates AI development and deployment across the sector. Regulation emerged as another unresolved area. The Survey observed that countries are adopting different institutional frameworks to manage AI-related challenges, reflecting varied policy priorities. In advanced economies, regulatory decisions will influence how artificial intelligence is used to address labour shortages and ageing populations. “For India, the challenge is to govern AI in a manner that is sensitive to its economic realities. The choices that India’s own institutions make will play a central role in determining not only the pace of AI diffusion but also how its economic value is distributed across sectors and among people,” it said.
The Survey underscored the importance of developing domestic AI solutions and outlined steps to strengthen the ecosystem. These include expanding AI model and application development, investing in human capital, evolving governance structures, and creating incentives for data localisation. It also pointed to a widening global AI divide between countries that build frontier models and those that focus on application-led innovation. The ability to train large foundational models remains concentrated among a few firms, which command significant market influence and place heavy demands on scarce resources. This, combined with export restrictions on advanced processors essential for scaling such models, further complicates India’s position. “This creates a fundamental asymmetry: most countries may end up participating in AI primarily as users, while a few will shape the technology’s trajectory, standards, cultural leanings, and pricing,” the Survey said, adding that closing this gap would involve prohibitive fiscal costs and an increasingly unsustainable development path.
The policy trade-off, it concluded, lies between directing limited resources toward frontier-scale ambitions or deploying them toward domain-specific systems aligned with national priorities. For India, the central question is not whether to adopt artificial intelligence, but how to manage its spread so that productivity gains support labour augmentation rather than displacement. Rapid and unplanned deployment could increase output while displacing workers faster than the economy can absorb them, while excessive delay could trap firms in low-productivity outcomes. Another imbalance highlighted was related to ownership and governance of AI models. The Survey said India must balance openness with responsible stewardship, ensuring that value generated from domestic data and intellectual property remains within the country rather than flowing overseas.
