India builds data centres but not AI: Bernstein flags risks in open letter to PM Modi

“Does the next leg of our growth story create more engineers, product builders and innovators, or does it mostly create more drivers, delivery staff and domestic help?” This is the question India faces today, according to an open letter addressed to Prime Minister Narendra Modi by global equity research and brokerage firm Bernstein.

The 12-page letter highlights key policy gaps and suggests reforms that could help India compete more effectively in global markets while sustaining economic growth, particularly in a post-AI world.

“In artificial intelligence, the risk is not visible today, but it is likely to be profound over time,” the letter notes. It recommends that global technology companies offering AI models should be required to list in India, with half their value shared with the public, in order to prioritise and safeguard the domestic development of such technologies.

The letter also warns against the direct automation of a meaningful share of roles in IT services, GCCs and BPOs, which employ 10-15 million people — a workforce that anchors the aspirational middle class and drives consumption. Besides, most of the surplus value in AI models, platforms, and IP remains concentrated in the US and, to an extent, China.

“If Indian data continues to be used to train global models without building domestic capability, India risks becoming a permanent consumer in the AI economy,” the brokerage firm observed.

‘Self rel-AI-nce’

Even as India is positioning itself as a hub of data centres by attracting large investments, it hasn’t ensured that the technology or the value created stays within India, Bernstein contends. Without addressing reliance on imports (e.g., high-performance servers, AI chips or GPUs, cooling systems), India might be acting more as a physical host for foreign technology than as a central hub of AI innovation.

More importantly, India does not own frontier AI models, unlike the US and China — a reflection of the historically absent first-generation technology platforms in the country.

The brokerage firm cautions that US-based Big Tech will dominate the AI landscape by controlling the platforms and pricing, while only the highly specialised AI applications will survive outside their control. This will inevitably put India’s IT services and BPO sectors, which are a key driver of income mobility, at risk.

To avoid this, Bernstein recommends a more protectionist approach, somewhat on the lines of China. It suggests developing AI models and infrastructure in India while implementing strict data localisation laws that ensure India retains control over its data and can monetise it.

Build capacity to evade jobless growth

The brokerage firm’s letter to PM Modi also appeals for a shift towards early identification of emerging sectors—such as automation, robotics, advanced materials, and AI-integrated manufacturing—and for committing capital and policy support before global supply chains are fully formed.

“Without this, the cycle of late entry and prolonged catch-up will persist,” the firm observes, calling for urgent capacity building lest new entrants to the workforce quickly end up in low-end urban services or precarious self-employment, or find themselves out of jobs. The letter points out that surplus labour in agriculture is still struggling to find productive alternatives.

“Ultimately, where and how a country deploys its people is what defines its long-term trajectory,” Bernstein notes