Why AI is the real litmus test for US-India technology partnership

Hopes for course correction lie in a substantive trade deal, but this will not materialize overnight. Meanwhile, the two countries must recognize that AI is narrowing the window to turn their IT ties into a lasting strategic advantage.

The US is the largest market for Indian IT service exports and India is the fastest-growing digital market for American technology companies. Together, they form the backbone of the global services economy, which now defines competitiveness even in goods markets. A phone or a car today is judged as much by its software and design as by its physical components.

AI applications depend on continuous human mediation and their success rests on trust. This is why the US-India services relationship has endured. American firms rely on Indian IT providers because of their service ethic and talent base. India, in turn, depends on US digital infrastructure like its cloud platforms as the rails of its digital economy. This reciprocal confidence is the quiet but powerful engine of the partnership and it stands in sharp contrast with the goods markets, where both are far more reliant on China.

AI makes preserving the legacy of trust even more important. The next wave of AI adoption will come from local and sector-specific applications adapted to cultural, linguistic and design contexts across key sectors like health, finance and education. Silicon Valley and Wall Street may invest trillions in AI infrastructure, but its commercial viability will depend on deployment, much of which will be tailored and overseen by Indian engineers.

Despite complementarities, policy confusion threatens progress. In Washington, impulses swing between protecting a technological advantage over China and appeasing domestic lobbies through regressive immigration reforms. Although Trump lifted a Biden-era order that restricted exports of AI chips to India, the spectre of export curbs aimed primarily at Beijing results in some uncertainty for us too.

In India, our instinct is to regulate first and ask questions later. Motivated by a hawkish approach to digital antitrust in Europe, as also by undercooked domestic discussions on digital sovereignty, our policymakers are exploring stricter regulation of foreign-owned digital infrastructure and applications. Both jurisdictions may be making the same error: equating progress with a need for restrictions. True sovereignty rests on capability. Snapping global ties will only weaken their ability to compete with the Big Tech actors they worry about most.

AI crystallizes these policy dilemmas because it straddles economics, security and governance. Economically, it promises trillions in value creation, but only for countries able to leverage a combination of technology and talent across the stack of AI applications and infrastructure. AI will shape the security environment via military competition, cybersecurity cooperation and information wars. In governance, technical and institutional alignment will determine whether societies trust the technology.

Technical standards are a natural starting point for cooperation. Many transnational cloud services that provide the bedrock for AI applications already follow advanced standards for access control, cybersecurity and data protection. If Washington and New Delhi formalize a common approach to the sovereignty of cloud data by mandating the use of such internationally accepted standards, they can safeguard citizens while using common infrastructure for AI.

Both countries also need greater institutional cooperation. Policymakers often espouse new regulatory doctrines, such as for digital antitrust or visas, without sufficient data on the harm it can cause markets or consumers. Collaborative research on the development and deployment of emerging technologies would allow both governments to ground policy in evidence.

Finally, the two must mould a culture of scientific cooperation through academic-industry partnerships and mobility programmes that can deepen trust while accelerating innovation. Just as space and energy cooperation once created a culture of collaboration with Moscow, AI offers us a chance to create a success story in a new domain that will shape the global balance of power.

India’s quick leap from landline phone scarcity to becoming the world’s largest consumer of mobile data shows our ability to adopt technologies at scale. The US has built an unmatched ecosystem for entrepreneurship and risk-taking.

The two democracies must move beyond defensive postures and embrace their interdependence as a source of strength. If they succeed, they will secure their economic future and get to write the rules of the global digital economy. If they fail, that task would be left to others. The AI stack is the litmus test.

The author is a policy expert at Koan Advisory Group.