Reforms 3.0: Charting India's Path to an AI-Powered Economy

The discourse on 'Reforms 3.0' posits that just as the 1991 liberalisation unshackled the economy and the 2016 data revolution democratised internet access, a concerted push towards AI can unlock the next phase of high growth. The central thesis is that India must treat AI compute as a strategic national resource, akin to power or roads, and make it widely accessible.

What is the core proposal for an AI-powered economy?

The central proposal is to make the fundamental units of AI computation—tokens—as abundant and inexpensive as mobile data became after 2016. The argument, articulated by policy proponents like IAS officer Srivatsa Krishna, is that India should shift from subsidising 'calories, chemicals, and carbon' to subsidising 'cognition'. The plan suggests an initial annual investment of approximately $2 billion, or 0.06% of GDP, to provide free AI token access to the country's top 100 research institutions and 5,000 high schools. This figure is about one-fourteenth of India's food subsidy and one-tenth of its fertilizer subsidy, which has grown at an 11% compound annual growth rate over the past decade (Source: The Hindu).

How does the government plan to achieve this?

The strategy does not advocate for direct government subsidies but a three-pronged approach modelled on the success of DPI and the telecom sector. First, it suggests reallocating funds by freezing the growth of large subsidies, such as for fertilizers, for a single year. Second, the government would forge public-private partnerships (PPPs) with global hyperscalers like Amazon Web Services (AWS), Google, and Microsoft, offering incentives like land and power subsidies in exchange for free or low-cost AI inference capacity. According to this view, India's market of 1.4 billion users provides significant leverage. Third, the model relies on cross-subsidisation, where paid enterprise-tier AI services would fund free access for students and researchers. The government's role is envisioned as a facilitator, creating a regulatory environment similar to the one that enabled the data boom through policies like the National Digital Communications Policy, 2018.