“Is the next part of our growth story creating more engineers, product creators and innovators, or is it mostly creating more drivers, delivery people and domestic helpers?” That’s the question facing India right now, according to an open letter written to Prime Minister Narendra Modi by global equity research and brokerage firm Bernstein.
The 12-page letter highlights policy gaps and suggests reforms that can help India better compete in global markets while sustaining its economic growth, especially in a post-AI world.
“With artificial intelligence, the risk is not visible today, but is likely to be profound over time,” the letter points out. It recommends that any global technology company offering AI models be pushed to list in India with half the value shared with the public to prioritize and protect domestic development of these models.
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The letter also warns against the outright automation of a significant proportion of roles in IT services, GCC and BPOs, which employ 10-15 million people – the workforce that anchors the aspiring middle class and drives consumption. Furthermore, most of the surplus value in models, platforms and IP remains concentrated in the US and to some extent in China.
“If Indian data continues to be used to train global models without building domestic capacity, India risks becoming a permanent consumer in the AI economy,” the brokerage firm noted.
Separate AI
While India is positioning itself as a data center hub by attracting large investments, it has not ensured that the technology or the value created stays in India, Bernstein argues. Without addressing import dependency (say, high-performance servers, AI chips or GPUs, cooling systems, etc.), India might function more as a physical host for foreign technology than as a central hub for AI innovation.
More importantly, India does not have frontier AI models, unlike the US and China – a reflection of the country’s absence of first-generation technology platforms historically.
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The brokerage firm warns that US Big Tech will dominate the AI landscape by controlling platforms and prices, while only highly specialized AI applications will survive outside its control. This will inevitably threaten India’s IT services and BPO sectors, which are key drivers of income mobility.
To avoid this, Bernstein recommends a more protectionist approach, somewhat along the lines of China. It proposes developing AI models and AI infrastructure in India while implementing strict data localization laws to ensure that India retains control over its data and can monetize it.
Build capacity to avoid rising unemployment
The brokerage firm’s letter to PM Modi also calls for a move towards early identification of emerging sectors – such as automation, robotics, advanced materials, manufacturing integrated with artificial intelligence – and providing capital and policy support before global supply chains are fully established.
“Without this, the cycle of late entry and long-term catch-up will persist,” the firm notes, as it calls for accelerated capacity building so that new workers don’t quickly end up in low-end city services or precarious self-employment, or out of a job. The letter points out that surplus agricultural labor is still struggling to find productive alternatives.
“Ultimately, where and how a country deploys its people is what defines its long-term trajectory,” notes Bernstein
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