India's AI Strategy Should Be Economic, Not Aspirational: Economic Survey 2026

The Economic Survey 2025–26, tabled in Parliament on Friday, described artificial intelligence (AI) as an economic strategy rather than a technological prestige race. It said that India should pursue application-driven and decentralised AI deployment instead of large, centralised models.

According to the survey, India's AI policy should be shaped by domestic constraints such as limited capital, computing capacity, energy availability and institutional depth.

It cautioned against replicating models adopted by advanced economies and instead recommended bottom-up, sector-specific approaches built on open and interoperable systems.

The survey highlighted that open and interoperable AI systems could act as a "force multiplier" for innovation.

It points to sharing at the level of standards, data-sharing frameworks and application interfaces, so that models, datasets and tools developed by government, research institutions and private firms can connect and be reused across sectors. This approach would lower entry barriers for startups, prevent concentration of power in a small number of global firms and allow innovation to spread more widely.

Where Is AI Being Used in India

The survey observed that AI demand in India is emerging from practical use cases rather than speculative frontier research, and cited examples in healthcare, agriculture, urban management, education, disaster response and public administration, where systems designed for low-resource environments and local hardware are being adopted to reduce costs and can compensate for structural gaps.

"India's opportunity lies in deploying AI in a way that is economically grounded and socially responsive," the survey said, adding that smaller, task-focused models deployed across sectors would allow innovation to spread more evenly and lower entry barriers for firms.

Skills Over Specialisation

On education and skills, the survey said India should move away from narrow technical specialisation towards foundational abilities such as reasoning, communication, judgement and adaptability to support wider AI use across workplaces and public systems. It added that data governance should focus on accountability and value creation rather than isolation, favouring trusted data flows with transparency and auditability over rigid localisation.

On governance, the survey proposed sequencing regulation by allowing experimentation first, scaling next and introducing binding obligations only where risks and asymmetries are most pronounced. It also called for a data governance framework that balances cross-border data flows with mechanisms to ensure that value generated from domestic data remains within the country.

Reacting to the survey, Mahesh Makhija, Partner and Technology Consulting Leader at EY India, said it underscored the need to extract greater value from existing IndiaAI Mission investments by expanding their reach and aligning AI adoption with the Digital Personal Data Protection (DPDP) framework through incentive-linked mechanisms. "A federated regulatory approach, where institutions embed AI governance within their core operations, will be critical to ensure that AI adoption translates into productivity, trust and sustainable economic value," he said.

Global Giants and Developing Nations

The survey highlighted growing global concentration in access to compute, data, finance and standards-setting power, which it identified as a structural risk for developing economies. It warned that dependence on a small set of global firms for foundational models could increase technological vulnerability and weaken domestic industry.

According to the survey, AI usage remains concentrated in high-income countries, which accounted for 58.4% of global usage in April 2025, while upper- and lower-middle-income countries accounted for 22.5% and 18.7%, respectively. The survey said, "Innovations and continuous improvement in AI capabilities are driving firms and new start-ups to develop ways in which AI can be applied to solve real-world problems."

Citing international evidence, the survey said that while AI use has expanded rapidly, with 88% of firms surveyed by McKinsey in 2025 reporting adoption in at least one business function, the development of advanced models remains capital- and energy-intensive and concentrated among a few players. Usage is still dominated by high-income countries, though adoption is rising in middle-income economies.

On jobs, the survey said early studies show little disruption so far. It cited research from Yale and other academic work suggesting there is no major difference in job prospects between roles with high and low AI exposure. However, it warned that the long-term impact remains uncertain. The survey also cautioned that increased automation could weaken India's traditional IT outsourcing model unless firms shift towards AI-driven services.

Overall, the survey positions AI as a strategic policy choice rather than a purely technological one. It said that India's path should focus on decentralised deployment, domestic capability-building and sector-specific solutions aligned with economic realities rather than scale-driven competition with global technology leaders.