AI Strategy in Economic Survey 2025-26

The Economic Survey 2025-26 introduces a strategic AI development focus for India, emphasizing small, application-specific models as the path forward rather than large, capital-intensive models.

Rationale for Small Models

• Large-scale model development is resource-intensive and dominated by a few global firms.
• Small models can address specific Indian contexts, such as: 
  • Healthcare screening
  • Agricultural advisory
  • Educational assessment
  • Government service delivery
• These models can utilize existing infrastructure and offer real economic benefits.

Government Incentives

The budget includes a 21-year tax holiday for hyperscalers building data centers in India to ease compute constraints, supporting AI ambitions.

Types of Small Models

The term "small models" encompasses different approaches:

• Fine-tuned open-weight models, e.g., adapting Llama for Hindi legal queries.
• Purpose-built models trained on Indian-specific data.
• Distilled versions of larger models for mobile deployment.
• Traditional machine-learning systems not based on language models.

Strategic Implications

The focus on small models has implications for various stakeholders:

• Frontier Labs: Opportunity for partnerships to develop India-specific capabilities.
• IT Services Firms: Risk of AI hollowing out India's core value proposition if they do not adapt quickly.

Call for Local Investment and Capability Transfer

The survey emphasizes the need for local collaborations, training, and R&D to ensure foreign firms contribute to India's AI ecosystem beyond mere API provision.

Challenges and Opportunities for Indian IT Firms

Indian IT giants like TCS, Infosys, and Wipro face a transformative opportunity to move from service providers to solution builders by:

• Fine-tuning models for enterprise contexts.
• Building retrieval systems on proprietary data.
• Integrating AI into business workflows.

The survey warns against merely intermediating foreign models, urging a shift toward building domestic capabilities.

Conclusion

India’s small-model strategy is a tailored solution, but its success depends on clearly defining and executing its components. Without a clear definition, it's challenging to implement effectively.