Is India Ready To Foster The GenAI Revolution?

Recently, a prominent tech entrepreneur and CEO of Freshworks, Girish Mathrubootham, compared the current AI landscape with the 1990s web browser era, dubbing it the new “monster wave”.

While Mathrubootham’s analogy holds ground, the question remains: Is India prepared to ride this wave? Well, the query finds its origin on the back of recent developments in the AI space, which point to but one thing — is it time for the GenAI industry to bear the load of policy or regulatory uncertainties similar to any other sector or industry?  

Currently, industry stakeholders seem to be white knuckling their way through the number of announcements being made for the sector. While the government has somehow managed to take a balanced leap in regulating and providing support so far, it is the fear of the unknown, driven by the examples of fintech, crypto and other industries, which have triggered nail-biting across this burgeoning space.

Moving on, as far as GenAI is concerned, one of the biggest concerns of the industry stakeholders we spoke with is the government’s swiftly changing stand on regulating the industry. And this reason isn’t without a set of merits.

For context, on March 1 many GenAI startups found themselves in a fix when the government notified that all generative AI products would have to be made available “with the explicit permission of the Government of India” if they are “under-testing or unreliable”. 

Close on the heels of its advisory, the Union cabinet gave its green light to IndiaAI Mission and allocated INR 10,372 Cr to spur AI innovation in the country.

At the time, the move was being pronounced quite paradoxical in nature by many, as the government’s “explicit permission” clause was seen as a deterrent to innovation.

Changing its stance again last week, the Centre has now recused itself from the “permission” clause. Mitigating the blow, the new advisory now directs “under-tested” or “unreliable” AI products to come “labelled” with a disclaimer.

While some believe this is a welcome step, sectoral experts only see this as a temporary relief and anticipate similar, more severe, regulations on the anvil.  

Although the government’s intentions to give a substantial boost to the country’s AI space cannot be doubted, the only bone of contention between the AI industry and the government is the latter’s prerogative to fix the space, without knowing what to fix. Thus, the frequent change in stance.

It is imperative to mention that India’s first initiative in laying the foundation for the country’s broader AI ecosystem goes back to 2018 when NITI Aayog released the National Strategy for Artificial Intelligence. Since then multiple discussions and policy announcements have taken place in the sector.

Here’s a quick timeline of the important developments that have taken place so far in the India AI space:

Is Ambiguity Killing The GenAI Cat?

Earlier this month, the Ministry of Electronics and IT (MeitY) put out an advisory saying that all intermediaries or platforms were to ensure that the use of AI model(s)/LLM/Generative AI, software(s) or algorithm(s) on or through their computer resource did not permit their users to host, display, upload, modify, publish, transmit, store, update or share any unlawful content. 

However, minister of state (MoS) for electronics and IT Rajeev Chandrasekhar later clarified that the advisory was exclusively meant for “larger companies” like Google and not startups. 

But by that time a massive outcry had already erupted in the GenAI startup ecosystem. It was then that IT minister Ashwini Vaishnaw stepped forth to clarify that along with startups a few sectors like healthcare and agriculture would be exempted from the directive. 

The CEO of Portkey.AI, Rohit Agarwal, said that guidelines needed more clarification as a “blanket statement” would only lead to more doubts. 

“I think everybody understands why this is done, but there have to be better guardrails put in place rather than licensing-style directives for both small and large companies,” Agarwal said. 

Lightspeed-backed Portkey.AI is an AI gateway that enables integrations with LLMs such as OpenAI, Anthropic through a unified API, simplifying interactions and minimising integration hassles.

According to Agarwal, while the government’s action felt like an “impulsive move” at the time, its clarification that “it doesn’t apply to a startup” also felt impulsive.

Raising his concern, the founder of Dubpro.AI, Ishan Sharma, said that besides the major foundational models like ChatGPT or Gemini getting impacted, startups like his, which don’t have their own models because of the high expenses involved in building them, are also set to witness a drastic impact.

“We currently leverage these models to fine-tune our own data and they act as a foundation for our business. If access to these models is hampered, overall business can plummet,” Sharma said.

“There was no step-by-step regulation for AI, just this abrupt advisory… Before putting out the advisory, the government could have established a benchmarking protocol first,” he added.

Funding At Stake?

After the first advisory, some startup founders outrightly dubbed the advisory “unfair” given Google has been the pioneering name in the GenAI boom in the world. 

To that end, some fear that the “abrupt” step might also hurt the investor sentiment in the space, which will further have a detrimental impact on funding.

For instance, Tanuj Bhojwani, head of People+AI said that following the government’s advisory, investor confidence has taken a hit, with some partnerships and deals facing delays, particularly due to our Western counterparts waiting for clarity in directives.

It is pertinent to note that the current Indian GenAI startup ecosystem is heavily dependent on foreign investors due to the high cost involved and a mature ecosystem that some other countries have already built. Google, Amazon, and Y Combinator are currently some of the top investors in GenAI startups in India.

“It’s not unusual for the Indian government to introduce hurdles. However, now, with global attention heightened after the G20 summit, policy decisions on growing tech industries are seeing more global scrutiny. While it’s clear the government wants to engage with startups and ensure public safety, perhaps a more gradual approach would have been better, focussing initially on self-regulatory measures and establishing benchmarks,” said Bhojwani.

He added that innovation should take precedence over regulations in this space given that AI is a sunrise industry.

Now the question arises, has the government completely failed to drive innovation? 

What Investors Want…

Most investors Inc42 spoke with said that it is too early for them to take a stand on the current regulatory environment around the GenAI ecosystem. 

While most of them are positive about the way regulations are expected to evolve in this nascent industry, some still believe that enabling this space should be a greater focus for the government at this stage, with regulations taking a backseat.

Following the AI advisory issued by the Centre, most investors said that they are watching out for the developments but do not see any detrimental impacts on Indian startups for now. However, they do not see the current level of comfort stretching for too long into the future, as the government will have its keen eye on this burgeoning space.

“As AI is moving very fast and is being built by many entities and companies, one has to ensure that it is built in the right way and there are some sort of guardrails around the uses and outcomes of AI. I think that the government’s directive is to remind everybody that they have to be responsible about building the technology,” partner at Speciale Invest, Arjun Rao, said.

Meanwhile, appreciating the government’s INR 10K Cr+ outlay for IndiaAI Mission, Rao said that even the government is learning and evolving right now but in the long term he sees the government striking the right balance between regulating the space without hampering innovation. He also ensured that the current AI advisory issued by the government does not impact the investor sentiment in any way.

It is pertinent to mention that India is not far behind the major countries in the GenAI space, even though there currently remains certain uncertainty on the regulatory front.

According to Inc42’s latest ‘India’s Generative AI Startup Landscape, 2023’ report, the country’s GenAI market is expected to grow exponentially in the next few years, surpassing $17 Bn by 2030 from $1.1 Bn in 2023, growing at a CAGR of 48%.

[Edited by Shishir Parasher]