Microsoft and Amazon have bet big, but where does India stand in the global race?

This week, tech giants Amazon and Microsoft pledged a staggering combined investment of over $50 billion in India, putting artificial intelligence (AI) in the spotlight.

Microsoft’s Satya Nadella announcement his company’s largest-ever investment in Asia – $17.5bn (£13.14bn) – “to help build the sovereign infrastructure, skills and capabilities needed for India’s AI-led future”.

Amazon followed suit and said it would invest more than $35 billion in the country by 2030, with an unspecified portion of that investment earmarked for building AI capabilities.

The announcements come at a particularly interesting time.

As fears of an AI bubble swept global markets and valuations of tech stocks soared, several major brokerages took a contrarian view of India’s AI landscape.

Jefferies’ Christopher Wood said the country’s actions constituted a “reverse AI trade”. This essentially means that India is expected to outperform other markets around the world “if the AI ​​business suddenly unravels” – or, in simple terms, if the global bubble bursts.

HSBC also shared a similar view, saying Indian stocks offered “hedging and diversification” to those worried about the ongoing AI recovery.

It comes as Mumbai stocks have lagged their Asian counterparts over the past year, with foreign investors moving billions into AI-focused Korean and Taiwanese technology companies in the absence of comparable opportunities in India.

In this context, investments from Amazon and Microsoft provide a much-needed boost – but it is worth asking where India actually stands in the global AI race.

There are no easy answers.

The adoption of AI in India has been rapid. Investments in certain parts of the value chain, such as data centersthe physical backbone of AI, or the chip manufacturing facilities – have begun to emerge. Just this week, American chipmaker Intel announced a collaboration with Mumbai-based Tata Electronics to manufacture chips locally.

But when it comes to a sovereign AI model, it appears India is still playing catch-up.

About a year and a half ago, the Indian government launched a AI mission through which it started providing start-ups, universities and researchers with high-end computer chips to develop a large local AI model like OpenAI or DeepSeek in China.

According to the Federal Ministry of Electronics, the launch of the sovereign model, which supports more than 22 languages, is imminent. In the meantime, DeepSeek and OpenAI have made further progress by launching new variants.

While the government has recognized the need to reduce its over-reliance on foreign platforms due to the risk of surveillance and sanctions, India’s $1.25 billion sovereign mission is a mere shadow of France’s $117 billion programs or Saudi Arabia’s $100 billion.

The country’s ambitions also face many other obstacles, from the availability of semiconductors to skilled talent and fragmented data ecosystems, according to global consultancy EY.

India currently does not have sufficient IT infrastructure or the billions of dollars of research and development (R&D) investments made over decades that have given China and the United States a distinct advantage.

Despite its global strength in AI talent, India is struggling to keep its developers at home.

“The current tightening of overseas work visas provides India with a window of opportunity to retain domestic talent and attract Indian-origin talent to the country. However, given that top AI talent is globally mobile, attractive policy incentives need to be put in place to encourage offshoring to India,” the EY report said.

China, for example, offers a range of incentives such as “financial support and subsidies, tax incentives and funding for research and development, special visas for talents, and expedited immigration,” the report said.

India has a much higher concentration of skilled AI professionals than the global average, at 2.5 times more. Policies to retain this talent are not yet in place.

Yet despite the challenges, India – along with countries like Brazil and the Philippines – is punching above its weight in the field of AI, especially in the context of its stage of economic development, according to a study by UNCTAD (United Nations Conference on Trade and Development).

According to the widely followed Stanford AI Index 2025, the country ranks among the top five in the world in terms of new companies benefiting from AI investments.

Last year, 74 new Indian AI startups received funding, a fraction of the more than 1,000 funded in the United States.

Indian AI startups have raised just $1.16 billion privately, compared to over $100 billion in the US and nearly $10 billion in China.

But there is enough intellectual engagement with AI in India, with the country accounting for 9.2% of AI article publications – slightly more than the US, but behind Europe and China according to the Stanford AI Index.

Experts say India’s advantage in AI may lie less in creating expensive language models than in using them downstream to boost entrepreneurship.

“I think in the short term, there is a big concentration of AI in the US. But over the next five to 10 years, AI will have a massive democratizing effect on the creation of new companies. There will be many small founders and entrepreneurs and the downstream effect will be incredible for countries like India and Asia-Pacific,” Shailendra Singh, managing director of Peak XV Partners which invests in AI start-ups, told the BBC.

Singh says India is seeing a surge in AI-based consumer applications, with investment in AI startups doubling from last year.

Additionally, many Indian startups are now using AI to address real-world challenges for millions of people who are still on the wrong side of the digital divide.

For example, MahaVISTAAR, an AI application run by the Maharashtra government, provides vital agricultural information in the local Marathi language, reaching over 15 million farmers.

“The hardest places to make artificial intelligence work are also where it matters most. If AI can serve India’s classrooms, clinics and farms, it can serve the world,” wrote Nandan Nilekani, the architect of India’s biometrics program, in The economist magazine last month.

Some of this has already started to happen, as apps like MahaVISTAAR and others have shown.

AI offers new opportunities but could disrupt India’s IT services sector, which has boosted its economy and created millions of jobs over the past 30 years.

As AI disrupts some of their business functions, India’s billion-dollar IT companies will become a key area of ​​”vulnerability”, according to Jefferies.

This vulnerability is already visible.

The growth of IT back offices in India is to slow downstocks are underperforming, hiring has declined and wages have stagnated as the specter of a new disruptor looms.

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