Minimize Digital India’s risk exposure: the country must use its market as leverage in a new global order

By building its own framework, India is doing for itself what others have long done for it: decide what counts.

This matters for three reasons.

The first is investment: a credible, India-anchored scorecard gives global investors a coherent—even if self-described—way to understand the country’s digital trajectory. The second is national branding. But it is the third that I want to dwell on: the strategic.

Technology is an important form of geopolitical power in the Information Age. An accurate understanding of how things stack up in the techno-political world is a prerequisite for formulating foreign, defence and economic policies.

What does the SIDE scorecard show?

In what should not surprise anyone, it logs genuine gains accumulated over 30 years. It ranks India the fifth-most digitalized country in the world and fourth on its standalone measure of artificial intelligence (AI). We have the second-largest pool of AI talent after the US and digital public infrastructure (DPI) that is a model for others, even as we digitally delivered service exports of around $328 billion.

But these wins came in a world that no longer exists. They were built during the heyday of globalization, when open trade and division of labour were treated as the natural order of things. Now that order has given way to mercantilism and vertical integration, and we are in an age of economic statecraft in which the powerful seek to own entire supply chains and seem to see inter-dependence for its chokepoints rather than mutual gain.

The report makes it clear that India’s digital weight is concentrated in the upper layers of the stack—in adoption, applications and services delivered at enormous scale. We are, above all, a vast market and a vast user base. In an open world, this was an asset. A large buyer was respected and capable of shaping the terms on which it is served.

But we have modest purchasing power relative to the West and China. And because our digitalization is broad but shallow, depending on chips, compute power, cloud and models produced almost entirely elsewhere, our success becomes a point of vulnerability rather than a source of strength.

Imagine a community that specializes in farming and sees itself as being in a world of free trade. It raises magnificent harvests but makes none of its own tractors, irrigation pumps, seed laboratories or drought-resistant irrigation systems, buying all of it from abroad.

While the world trades freely, this is the height of good sense: specialize in what you do best and import the rest. But the day that toolmakers choose to withhold their tractors or raise prices at the moment of sowing, it discovers that its abundance was always contingent on someone else’s goodwill. India’s digital economy is that farming community.

As Pranav Hari has argued, the basic unit of our flagship IT services industry is shifting from the billable human hour to the AI token. The model that worked so well for over three decades relied on skilled and low-cost human labour as a scarce input. But now that an AI agent can perform the task at a cost measured in tokens rather than salaries, the arbitrage that built a $250-billion export industry risks erosion.

There is more to India’s IT industry than wage arbitrage, but industry leaders concede that a large slice of it faces disruption. So, while the harvest is still abundant, the tools that produce it are owned by others.

What can we do about it? There are three broad lines of simultaneous action.

First, in the short term, secure access to the lower layers of the stack we cannot yet build—advanced chips, compute and foundational models. Our foreign policy should focus on deepening engagement with the US despite headwinds, exploring a deeper relationship with Europe and managing a difficult relationship with China without sliding into dependence on it. Our technology policy should support open-source models and tools that no single power can simply switch off.

Second, over the medium term, build those lower layers. Domestic semiconductors, compute capacity and a well-funded research base are the difference between being a tenant and an owner.

Third, and the most demanding, learn to convert scale into leverage. This means wielding our market size strategically. Easier said than done, but we must discover how to shape global standards and rules, insist on interoperability based on open protocols and export our DPI model.

We must also study how to use harder instruments that large markets can deploy when pushed, including the prospect of withholding access to our own market.

The author is co-founder and director of The Takshashila Institution, an independent centre for research and education in public policy