Regulation of Artificial Intelligence (AI): European Union's AI Act and Its Implications for India

The Government of India is contemplating a specific legislation to govern Artificial Intelligence (AI). However, the European Union's AI Act, effective from August 2024 and applicable by August 2, 2026, is already impacting the global AI supply chain. This Act employs a risk-based approach to AI regulation, prohibiting certain AI systems, regulating high-risk ones, and imposing lighter checks on limited-risk use cases.

Key Provisions of the EU AI Act

• The Act requires a 'conformity assessment' for high-risk AI systems, particularly those used in sensitive areas like hiring or education. This proves that the AI system meets standards on testing, documentation, and human oversight.
• Most providers self-assess against the Act’s criteria, with only certain biometric tools needing independent checks.
• A system can operate without disturbance once compliance is confirmed, but a "substantial modification" necessitates reassessment.
• The compliance deadline for standalone high-risk AI systems is December 2027, and August 2, 2028, for high-risk AI embedded in regulated products. Systems already in the market are exempt until substantially modified.

Challenges for Indian Technology Industry

The Act's assumption that AI software is sold as a finished product doesn't align with India's technology practices, which focus on responsive adaptation and bespoke services. This means:

• Predictable product road maps are favored, while bespoke services face challenges in demonstrating compliance within the original assessment scope.
• Firms modifying high-risk systems may inherit the original maker’s obligations, affecting business models built on adaptability and demand-driven improvements.

Opportunities for India

The Act offers opportunities through the demand for compliance documentation and assessment, which Indian professionals can meet. Additionally:

• India can leverage its capacity in data protection, financial regulation, and technical assurance to support AI compliance.
• The EU Act allows for conformity assessment bodies from third countries to be recognized, subject to treaty negotiation. India’s recent EU Free Trade Agreement includes provisions that could facilitate such recognition.

This strategic position could transform India into a supplier of AI compliance services, integrating into the EU's conformity assessment ecosystem. The decision on which path India takes is imminent.