Implications of AI on the Indian Economy

AI’s transformational potential stems from its ability to lend itself to diverse range of applications across a range of sectors. The study is based on the understanding that the implications of AI can be best understood by viewing AI as a General Purpose Technology (GPT). AI as a GPT implies that AI led innovations will be reflected not only as direct contribution in any given sector, but also inspire complementary innovations and spillover benefits across the economy. The objective of this report is to estimate the impact of AI on Indian economy. The report also provides policy recommendations that can enable the sustainable growth of the AI ecosystem in India. These include actionable policy steps that are individually important to the implementation of a large-scale AI program.

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Key Findings

AI as a General Purpose Technology (GPT)

AI’s ability to lend itself to diverse range of applications across a range of sectors, resembles that of GPT
The economic impact of AI led innovations are not only reflected as direct contribution to sectors but also as indirect effects on productivity that GPTs trigger

Key Results from Econometric Estimation

The report results find a positive and significant relation between AI using firms and total factor productivity growth
The estimate suggests that a unit increase in AI intensity will increase TFP growth by 0.05%
On average, a unit increase in AI intensity by AI-using firms can return $67.25 Billion or 2.5% of GDP to the Indian economy in the near term

Micro-Evidence from Case Studies

The report uses a capabilities framework as a guide to understand the causes that underline success or failure of India’s ecosystem in conducting AI-based innovation
Capabilities of firms developing AI applications in India
- Investment Capabilities
- Production Capabilities
- Linkage Capabilities
Impact of AI on firms adopting AI-based solutions
- Economic Implications for business adopting AI
- Social Implications of AI Applications
- Implications on labor market

Policy Recommendations

Government has an active role to play in creating institutions and enabling an AI ecosystem, while also encouraging private players to innovate and thrive.
Action-oriented policy recommendations are critical for the implementation of a large-scale AI program

Implications of AI on the Indian Economy

Key Findings

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