Skip to Content Skip to Menu Skip to Footer

By Shankar Krishnamurthy and Sugandha Srikanteswaran


Highlights

AI can play a key role in accelerating India’s economic growth as the country aspires to be the third-largest economy in the world by fiscal 2030–31.

India can aim to replicate the success of the digital public infrastructure public-private partnership model that helped accelerate the country’s digitalization.

There is a significant opportunity for India-based IT providers and startups to be public-private partners for AI.

India Forward

Emerging Perspectives

Developing AI capabilities and the realization of resulting productivity gains will require India to have policies that provide an ethical and regulatory framework, research and development and digital infrastructure investments, and a skilled AI labor pool.

AI’s potential rests on several factors

Investment capacity, including the willingness of corporations and governments to fund AI research projects.

Digital infrastructure, encompassing an economy's IT infrastructure, the population's access to the internet, the availability of reliable data and the existence of institutions to support AI research and development.

Policy support from prevailing laws and regulations, and the development and implementation of rules that facilitate AI's progress — including the regulatory environment for technology startups, a conducive administrative environment and data privacy regulations.

Labor suitability and availability, including education levels, AI literacy, the capacity to reskill workers, and the ability to attract and retain a qualified workforce. 

As of Aug. 13, 2024.
Source: S&P Global Ratings.
© 2024 S&P Global.

Can the AI mission replicate the success of the Digital India model to accelerate economic growth?

The Digital India initiative, a public-private partnership seeded with key investments by the government of India, continues to play a key role in transforming Indian society using digital technologies. The vision of the program was centered on three key areas: digital public infrastructure (DPI), digital access to government services and the digital empowerment of citizens. While the origins of DPI can be traced back to the launch of the Aadhaar unique biometric citizen ID system in 2009, successive governments, through the continuation of policies and investments, have continued to evolve DPI, also known as India Stack.

DPI is widely acknowledged to be a successful platform that has helped accelerate India’s digitalization through increased connectivity, improved efficiency, innovation and inclusive growth. 

The recently announced IndiaAI Mission has the potential to build on the successful public partnership model created by the Digital India initiative and accelerate India’s economic growth as the country aims to become the third-largest economy in the world by 2030, as per S&P Global projections. 

IndiaAI Mission

On March 7, 2024, the Indian government announced the launch and implementation of the IndiaAI Mission through a public-private partnership model aimed at nurturing India’s AI innovation ecosystem. This demonstrates the Indian government’s commitment to creating an AI environment and propelling economic growth. 

According to the mission’s official website, the broader vision of IndiaAI is to “bolster India’s global leadership in AI, foster technological self-reliance, ensure ethical and responsible AI deployment, and democratize the benefits of AI across all strata of society.” Pivotal initiatives withinthe mission include the following: Compute Capacity, Innovation Centre, Datasets Platform, Application Development Initiative, FutureSkills, Startup Financing, and Safe and Trusted AI.

According to a 2024 report published by not-for-profit industry association Nasscom, the Indian AI market is expected to grow to between US$17 billion and US$22 billion by 2027, attracting investments of US$4 billion and becoming the third-largest talent base with an expected 1.25 million to 1.35 million people with AI skills.  

The Indian AI market is expected to grow to between US$17 billion and US$22 billion by 2027, attracting investments of US$4 billion and becoming the third-largest talent base with an expected 1.25 million to 1.35 million people with AI skills.

IT and IT-enabled services sector’s critical importance to India’s GDP

IT services (IT) — including software development, maintenance and support — and IT-enabled services (ITES) — including business process outsourcing and knowledge process outsourcing — have been crucial contributors to India’s GDP, adding US$254 billion in revenue to, and comprising about 7.5% of, India’s GDP in fiscal 2023–24. Almost 80% of the IT/ITES revenue came from exports, with the US, UK and EU being the top three markets. The IT/ITES industry has also created large employment opportunities and is estimated to employ 5.43 million professionals, according to the Ministry of Electronics and Information Technology. 

The IT/ITES industry has adapted well to disruptions, including economic downturns and various automationdriven reductions, by focusing on growth areas such as digital transformation and cloud services. The industry has continued to grow in head count and revenue. However, generative AI presents a new set of challenges with its ability to create natural language chat applications such as ITES/voice business process outsourcing, which can disrupt customer service functions. GenAI can also generate code, automate testing and improve the efficiency of application development by 20%-40%, making it so fewer programmers are required. With its high reliance on head count for revenue growth, IT service providers must find ways to continue growing revenue by recalibrating their business models to provide higher-value services.

The starting point in the recalibration and transformation of the IT/ITES model is upskilling and reskilling the workforce to understand and deliver outcomes to clients using GenAI. These firms have deep roots in global enterprises and have established themselves as trusted partners by helping clients optimize processes and reduce costs through outsourcing. As part of customer IT and business operations, IT/ITES providers can harness their knowledge of architecture, data and processes to help integrate GenAI into workflows and deliver outcomes like improved customer experience and faster time to market.

The top five IT service providers collectively had a workforce of 1.45 million employees as of the first quarter of fiscal 2024–25. According to the companies’ reports, these providers have trained more than 775,000 employees on GenAI. 

Workforce transformation is the first step in countering the impact of GenAI on revenue growth. IT/ITES providers need to be open to changing business models by reducing dependence on time and material engagements and must move toward more outcomebased engagements using AI/GenAI. This business transformation requires providers to understand their customers’ business strategies and IT processes, using AI/GenAI to deliver outcomes in the form of improved customer experience and the faster launch of new products and services. One major opportunity can be found in the customer experience management function — which includes help desks, service desks and call centers — where IT/ITES providers can use AI/GenAI to create human-like chat interactions to deliver a faster and superior personalized customer experience.

IT/ITES providers have the scale, expertise and transformation experience required to establish a publicprivate partnership for AI skilling and to impact the Indian labor market. Initiatives such as IndiaAI FutureSkills provide the framework for a public-private partnership that can prepare the Indian workforce for opportunities.

IT/ITES providers have the scale, expertise and transformation experience required to establish a public-private partnership for AI skilling and to impact the Indian labor market.

AI skilling in India

AI is rapidly transforming the global job market, and the Indian workforce is no exception.

The Ministry of Electronics and Information Technology acknowledges that while AI may threaten some jobs, it offers a variety of new, high-paying roles. India’s AI job market has expanded in recent years, with a 2023 report by Nasscom highlighting 30% year-over-year growth. According to Nasscom and the Boston Consulting Group, the availability of AI jobs in India is underpinned by the country’s available talent, which is ranked second globally. This growth is driven by the increasing adoption of AI technologies by Indian businesses to enhance productivity, improve customer experience and drive innovation for the domestic and global markets.

AI is opening avenues for new job opportunities across multiple industries. Sectors such as manufacturing, healthcare, and banking, financial services and insurance are looking to grow their adoption of AI and GenAI. For instance, HDFC Bank is investing in building large language models, and startups such as Krutrim are focusing on creating domesticrelated LLMs. The renewable sector is also expecting a boom in job opportunities, including white-collar jobs such as project management and market analysis, with a focus on solar energy. The skilling needs in the solar energy sector are also high, and AI can be used to provide this education.

The upskilling of the workforce is a key aspect of embracing AI and GenAI. Companies have launched educational programs, such as Microsoft’s AI Odyssey and the NVIDIA Deep Learning Institute. The National Council for Vocational Education and Training, along with the Indian Institute of Technology Madras, launched AI learning programs. These initiatives aim to equip the Indian workforce with the necessary skills to leverage AI technologies effectively. According to a 2024 study on global capability centers by Nasscom and KPMG, upskilling on AI and GenAI needs to grow, and fresh graduates need to gain hands-on experience with the technology to quickly bridge some job gaps. 

From a regulatory perspective, AI guardrails and enforcement are continuously being reviewed and published. Key requirements for the rollout of AI include the labeling of AI models, obtaining consent and informing users of models’ fallibility. These measures aim to ensure that AI technologies are deployed responsibly and ethically. This will also create new job opportunities in legal and counsel for the AI sector.

In essence, the adoption of AI and GenAI in India presents a bilateral scenario. While there are concerns about job displacement, the potential for creating higher-paying, skilled roles is significant. The government’s financial commitment, coupled with industry-specific opportunities and robust skilling initiatives, positions India to harness the transformative power of AI effectively.  

Investments in AI

While the US is the global leader in public and private AI investment, the Indian government has demonstrated its commitment to the industry’s development by announcing a budgetary allocation of 103.72 billion rupees, or about US$1.3 billion, through the IndiaAI Mission. 

The US, China and the UK accounted for 81% of global private investments in AI startups over 2013–23. In fiscal 2023–24 alone, US private investments amounted to US$67.22 billion, while private investments from Indian companies totaled US$1.39 billion.

While an initial public investment in 10,000 graphics processing units as part of the IndiaAI Mission is a good start, it is small-scale compared with the capacity created by US-based companies such as NVIDIA, Microsoft, OpenAI, Google, Amazon and Facebook — capacity that has allowed them to dominate the AI/GenAI market, especially in AI infrastructure and LLMs. 

Indian IT service providers have also announced investments in AI. Wipro has committed US$1 billion over the next three years to build its ai360 platform and FullStride Cloud, expanding AI, data and analytics solutions. Tata Consultancy Services, India’s largest IT services provider, has also made significant commitments to invest in AI, including the launch of its TCS AI WisdomNext platform. The platform is an aggregation of multiple GenAI services on a single interface that enables enterprises to adopt AI at scale. Meanwhile, Infosys launched the Topaz platform for GenAI. These companies also have venture arms that invest in early-stage AI startups and AI-related companies.  

The public-private partnership AI opportunity

In addition to playing a key role in creating a skilled and expert AI workforce, IT/ITES providers have the opportunity to partner with the IndiaAI Mission and replicate the success of the Digital India initiative, fostering an ecosystem that enables innovation and the creation of new products and services using AI.

The Digital India initiative, which was created with public funding, was largely leveraged by financial technology startups that revolutionized the digital payments, education and e-commerce sectors. While startups will continue to play a key role in AI, there is a significant opportunity for established IT/ITES players to partner with the IndiaAI Mission and cover areas including AI skilling, investing in AI infrastructure and creating an India data repository. 

There is an opportunity for IndiaAI and Indian IT/ITES providers to create India-specific models, trained with datasets that can help Indian researchers in various sectors such as climate and environmental studies, agriculture, food supply chain, healthcare, and mobility.

Conclusion

In summary, the IndiaAI Mission provides a substantial opportunity for established IT/ITES providers to be a force multiplier and create an impact beyond their organizations and customers. They can transform themselves and Indian society through this public-private partnership. The continuation of supportive policies, the demonstrated success of the Digital India public-private partnership model and the transformation expertise of IT/ITES providers over the last 30 years all point to the high probability of this partnership succeeding and helping India realize its potential to become the third-largest economy in the world by 2030. This collaboration can also transform India into a society that has democratized access to computing and AI, creating opportunities for a large section of the population and establishing India as a leading economic engine of sustainable development over the next 20 years. 

India Forward: Emerging Perspectives

India’s growing role in the global economy

This article was authored by a cross-section of representatives from S&P Global and in certain circumstances external guest authors. The views expressed are those of the authors and do not necessarily reflect the views or positions of any entities they represent and are not necessarily reflected in the products and services those entities offer. This research is a publication of S&P Global and does not comment on current or future credit ratings or credit rating methodologies.

Download this report