by Global equity research warns India lacks domestic AI models; country responds by hosting AI Impact Summit, building data centers, and debating the framing
NEW DELHI / MUMBAI, India
Global equity research firm Bernstein issued an open letter to Prime Minister Modi in April warning that India has “missed the AI boat,” that AI advancements threaten the quality jobs in India’s information technology sector that have sustained its economic growth story for three decades, and that unlike the US and China, India does not own any large-scale AI models, making it a “permanent consumer in the AI economy” rather than a producer. This assessment was received by the Indian government with a press release about the AI Impact Summit held in New Delhi in February, which the PM’s office confirmed Modi attended and at which he spoke about India’s commitment to AI leadership, which the Bernstein analyst confirmed is not the same thing as having the AI models.
“India is no longer the obvious, one-way growth story investors assumed it was a few years ago,” said Alexandra Hermann Prasad, lead economist at Oxford Economics, adding that the economy “remains strong by global standards” while facing “headwinds from weaker consumption, fragile investment sentiment, higher energy costs and more selective global capital.” This is the economic analysis equivalent of telling someone their haircut is fine for what it is — technically favorable but with implications that require further unpacking.
The IT Sector and the AI Threat: What Bernstein Actually Said
India’s information technology sector employs millions of workers in software development, business process outsourcing, IT-enabled services, and related fields, and has been one of the primary engines of India’s middle-class growth over the past thirty years. The concern articulated by Bernstein is that AI systems capable of performing coding, customer service, document analysis, and data processing tasks are reducing the demand for the specific categories of knowledge work that Indian IT companies have built their business model around — not eliminating the sector, but compressing the labor intensity in ways that threaten wage growth and employment expansion in the category of jobs that has been most important for India’s economic mobility story.
The additional concern — that India lacks domestic AI model ownership — creates a dependency risk: if the AI tools that Indian companies and workers use are developed and controlled by US or Chinese firms, then India’s position in the AI economy is as a customer and implementer rather than as a creator and licensor, which is a less favorable economic position than the one Indian IT firms have historically occupied in global software services.
Modi participated in the Vivatech 2026 conference in Paris, where he exchanged views with Mistral AI CEO Arthur Mensch on “trusted AI, innovation and international cooperation” — a meeting that the PMO described as productive and that Bernstein analysts noted is a conversation about using other people’s AI rather than developing India’s own, which is itself a legitimate approach but is not the approach that produces domestic AI model ownership.
The Data Center Play: India’s Available Path
India’s most viable near-term AI economy participation, per analysts, is through data center infrastructure. The country has a large English-speaking population, significant renewable energy investment, and geographic advantages for serving Asian markets, making it a plausible location for the data center infrastructure that AI model deployment and fine-tuning requires. Several major technology companies have announced India data center investments, and the government has been developing policy frameworks to attract more.
“The only proxy AI play India can participate in is through data centers,” per Bernstein’s Venugopal Garre, managing director of India research. This framing positions data centers as a consolation prize for missing the AI model development race, which is the uncharitable reading; the more charitable reading is that data center infrastructure is a meaningful economic sector that creates jobs, generates revenue, and positions India within the AI value chain at a specific point that is not the highest-value point but is not zero. Both readings contain information. Neither is sufficient to evaluate India’s full AI economic position, which is developing faster than static analysis captures and slower than summit speeches suggest.
The FDI Numbers: Context for the Concern
Foreign portfolio investors sold $29.5 billion in Indian equities this year, following $18.9 billion in sales last year. Net FDI — accounting for repatriation and outbound Indian investment — is at near-all-time lows despite strong gross inflows. The rupee has weakened. The Reserve Bank of India raised its inflation forecast to 5.1 percent and cut its growth forecast to 6.6 percent from 6.9 percent. These are not crisis numbers; India at 6.6 percent growth is still one of the world’s fastest-growing major economies. They are recalibration numbers — the revision of expectations from “obvious one-way growth story” to “strong economy with real headwinds” that requires different analysis and different investment theses than the previous framing supported.
The government’s response — a capital gains tax exemption for foreign bond investors, continued reform announcements, the India-UK trade deal, the AI summit — represents the available toolkit for an administration that is two-for-thirty on the CSIS reforms scorecard and is being asked by global investors to move faster on the structural reforms that the scorecard is measuring. The Reserve Bank of India is managing monetary policy with the dual constraint of supporting growth and containing inflation in an energy-price environment significantly shaped by the Iran war’s effect on oil prices, which India — as a major oil importer — cannot control and can only manage the consequences of.
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