India's AI Strategy: Frugal Innovation, Not Big Bang

India's approach to Artificial Intelligence is centered on developing purpose-driven AI systems designed to solve local problems, rather than building large-scale models. This strategy has positioned India as third globally in AI capability, according to Stanford University's Global AI Vibrancy Index 2025. India excels in the application layer of AI, including AI applications in various sectors and Software as a Service (SaaS).

While global AI investment leaders like the US and China have invested over $470 billion and $120 billion respectively, India's total AI investment announcements exceed $11 billion. The nation is not heavily investing in foundational layers like models, chips, and energy, recognizing its investment capacity differs from global leaders. The government's recent policy announcements and the establishment of a high-powered committee for technology and AI impact aim to foster a supportive ecosystem.

Furthermore, India is enhancing its attractiveness for tech investment and talent through various tax incentives. These include enhanced 'safe harbour' for IT services, tax exemptions until 2047 for global cloud and data centre providers, and tax exemptions for non-resident experts staying up to five years. Digital technologies, AI, and e-commerce are being integrated across government initiatives to improve customer satisfaction and ease of doing business, signalling a positive environment for AI development.