India File: AI fanfare meets policy pushback

February 17 - By Ira Dugal, Editor Financial News, with global Reuters staff

Global tech leaders have descended on New Delhi this week as India hosts its first major artificial intelligence summit. The timing of the meet could not be better, as the ramifications of the AI boom are under heavy scrutiny. That's our focus this week.

As AI use expands, what kinds of safeguards do you believe are essential for India? Write to me at ira.dugal@thomsonreuters.com.

And Indian investors pile into gold ETFs as returns from the metal outpace equity gains. Scroll down for more on that.

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AI BIGWIGS HIT NEW DELHI

AI royalty — from OpenAI's Sam Altman to Google's Sundar Pichai — has descended on New Delhi for the revolving AI Impact event being hosted by India for the first time.

The summit, which lists "people, planet and progress" as its focus, is expected to feature agenda-setting discussions ranging from the impact of AI on daily lives, to how it is reshaping jobs and the environment.

Demand for services around the week-long event has surged: airfares have jumped, luxury hotels are charging up to $2,000 a night, and the venue is expected to be packed with everyone from top politicians to global business leaders.

Nvidia CEO Jensen Huang pulled out, though, due to "unforeseen circumstances".

India, widely seen as a laggard in AI despite its vast pool of tech talent, is racing to build out its AI capabilities, in what it sees as a $130 billion opportunity by 2032. Companies such as Google and OpenAI are now targeting the world’s most populous nation as their next major growth market.

With more than 800 million internet users and abundant data, India is a tantalising prospect for AI's growth, but it won’t be easy, Reuters Breakingviews columnist Ujjaini Dutta wrote in this piece.

The summit coincides with growing worries of AI’s disruptive power in markets at home and abroad. Stocks across India's IT sector have been pummelled recently on such worries.

And Indian regulators are trying to balance the technology’s risks and rewards.

One of the biggest risks for India - where formal jobs remain scarce - is the potential hit to employment. Call centres, a mainstay of India’s services economy, are already feeling the impact. Reuters journalists Munsif Vengattil and Aditya Kalra reported on the new wave of AI chatbots replacing human agents.

“Rapid, uncalibrated deployment of AI may boost output but risks displacing segments of the workforce faster than the economy can reabsorb them,” Chief Economic Adviser to the Indian government V. Anantha Nageswaran warned in a report last month.

Nageswaran flagged two other concerns: the opacity of many AI models, and the heavy demand for data centres — infrastructure that could strain an already resource‑constrained economy.

The India File explored these risks in an earlier edition; Catch up here if you missed it.

GROWING DISCOMFORT

Amid the AI fanfare, authorities' concerns about the technology have grown.

In revised rules released earlier this month, the government for the first time defined AI‑generated content and placed responsibility on social media platforms to ensure such material is clearly labelled. The changes accompanied a wider requirement to remove any unlawful content within three hours, down from the earlier 36‑hour deadline.

Financial regulators are also becoming more cautious. The Reserve Bank of India has asked lenders to adopt board‑approved policies governing the use of AI and to make information on AI models available for internal and external audits when required.

It has also said models used in financial decision‑making must include human oversight, and that the use of AI in products and services should be clearly disclosed.

The draft rules come as AI adoption accelerates in the financial sector.

Bajaj Finance BJFN.NS, India’s largest non-bank consumer lender by assets, last week disclosed increased use of AI in its operations.

On its earnings call, the company said it had used AI to analyse 20 million customer calls by converting voice to text to generate actionable insights, leading to 100,000 new offers where information was previously unavailable. It plans to expand AI‑driven identification of lending opportunities.

Market regulator SEBI has also signaled caution, requiring stronger oversight and enhanced disclosures around the use of AI in areas such as algorithmic trading, asset management, portfolio management and advisory services.

The caution is warranted as risks related to AI-driven decision-making grow.

A global EY survey of 975 C-suite leaders across 21 countries in October showed that nearly every company therein had already suffered financial losses from AI-related incidents, with average damages conservatively topping $4.4 million.

MARKET MATTERS

Indian investors are piling into gold exchange-traded funds (ETFs) at the fastest pace on record, with inflows into such funds overtaking flows into equity investments for the first time.

Flows to gold ETFs more than doubled in January from the previous month to 240.4 billion rupees ($2.66 billion), while equity flows fell 14% month-on-month.

Read here for more.

The demand for gold ETFs, which are backed by physical gold, was one factor that led to a surge in imports of the metal into India in January and widened the trade deficit.

THIS WEEK'S MUST-READ

India's decision to open up small sections of the farm sector as part of the U.S.-India interim trade framework has sparked protests from farmer groups in the country.

Thousands of Indian farmers protested across the country on Thursday, alleging the government had compromised their interests.

If the protests spiral, they could pressure the Narendra Modi-led government, which in the past has had to reverse planned changes to farm laws due to pushback from the politically powerful farm lobbies.

Read this explainer to understand the impact of the U.S.-India trade pact on the farm sector.

($1 = 90.5250 Indian rupees)