Opinion
Indian states should adopt AI for inclusive growth and governance
Summary
- The use of artificial intelligence could serve as a great leveller as it can help states overcome their fiscal constraints amid pressure to increase populist spending. Its adoption in partnership with private entities could act as an extraordinary enabler.
States are a disproportionately critical unit of governance in India’s federal structure. Unfortunately, they face severe challenges due to inadequate financial resources and limited capacity to advance equitable last-mile development. According to Niti Aayog’s Fiscal Health Index 2025, most states are financially strained. The Reserve Bank of India (RBI) has also cautioned many of them about high deficits. This fiscal pressure, compounded by populist spending, restricts governments’ ability to meet foundational development needs.
Artificial intelligence (AI) can serve as a powerful equalizer by bridging gaps in resource allocation and outcomes between states across sectors like education, agriculture, healthcare and sustainability.
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The Annual Status of Education Report (ASER) 2024 reveals that less than 50% of Class 5 students in rural India can read a Class 2 text, and only 30.7% can perform basic division. These gaps stem from factors that conventionally require substantial financial resources to address. AI-enabled solutions can be used to provide personalized learning pathways for students from disadvantaged backgrounds at minimal cost.
Globally, AI is revolutionizing education. Estonia has integrated it into its national system, while Singapore’s platforms offer customized learning modules. China’s AI-based tutoring systems provide real-time feedback to students and teachers. Such models demonstrate how Indian states can leverage AI to overcome legacy resource constraints and scale up quality education, reducing rural-urban disparities.
Agriculture presents another significant opportunity for AI-led improvements. Countries like the US, Israel and Australia use AI for satellite imagery analysis, precision farming, crop quality enhancement, and yield optimization. Telangana’s Saagu Baagu program and Madhya Pradesh’s AgriHub exemplify this potential. AI can enhance forecasting accuracy, reduce wastage and increase the bargaining power for farmers. By leveraging AI, Indian states can drive large-scale improvements in agricultural productivity and rural livelihoods.
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India’s micro, small and medium enterprises (MSMEs), which contribute 30% of GDP and over 40% of exports, stand to benefit too from AI adoption. For example, AI-driven predictive analytics can help anticipate demand cycles, adjust inventory, streamline production and boost export competitiveness, thereby reducing costs and improving turnaround times. Capabilities such as demand forecasting, dynamic pricing, consignment front-loading and real-time decision-making—previously accessible only to large corporations—can now be integrated into MSME operations using AI.
Countries like Germany and South Korea have used AI in their MSME sectors to improve production efficiency, reduce waste and enhance export potential. Indian MSMEs in textiles, food processing, toys, furniture, jewellery and e-commerce can similarly improve profitability and expand global market access.
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AI can also play a pivotal role in strengthening India’s strained public health system. South Korea, Canada and the UK use AI-based contact tracing to identify infection clusters, predict hospital admissions and optimize resource allocation. AI-driven diagnostic tools are improving early disease detection and treatment accuracy.
Further, AI can enhance energy efficiency, promote renewable energy use, improve waste management and strengthen climate resilience. Denmark uses AI to optimize wind energy production, and Singapore to predict waste-generation levels to optimize collection for energy conversion.
That said, AI-based governance systems face challenges too: a) Data privacy; b) Algorithmic biases that could exacerbate inequalities; c) Lack of trained professionals to manage AI technologies; and d) A digital divide due to an infrastructure imbalance.
However, their net benefit far outweighs these challenges, which are addressable. We need robust frameworks for regulated data use, investments in digital literacy programmes and infrastructure upgrades. Public-private partnerships can help overcome capacity deficits and drive inclusive AI adoption.
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State governments should develop an AI governance roadmap that prioritizes cross-state collaboration with private enterprises. With a relatively low initial investment in technology infrastructure, they can scale up AI capabilities quickly, leading to better public service delivery. To foster a sense of competition, the government should establish a national AI adoption index to rank states on AI implementation and impact. This would incentivize states to accelerate AI integration into governance. Creating AI innovation hubs at the state level can also drive experimentation and the development of localized solutions.
Embracing AI is not an option, but a governance imperative. By building AI infrastructure and implementation frameworks in partnership with private tech enterprises, Indian states can lead the global shift toward technology-driven development. With open-source data-sets and models, and widely accessible compute infrastructure, states could also succeed with AI Platform as a Service (AIPaaS). AI thus can transform governance, ensuring that every citizen benefits from inclusive growth and access to essential services.
The author is a strategy and public policy professional. His X handle is @prasannakarthik
