How to nurture AI ecosystem

India is entering a pivotal phase in its AI journey. Earlier this year, Bengaluru-based Sarvam AI unveiled two indigenous foundation models. Its achievement is significant for what it reveals about how AI innovation occurs in India. The company did not build in isolation. Its multilingual offerings reflected a mix of India-specific data sets, public compute support, cloud and chip infrastructure, developer tools, and research ecosystems from across the global technology landscape. The result was not merely technological adoption but global-scale innovation tailored to India’s linguistic and market realities.

According to Nasscom, India has become the second-largest hub for generative AI startups, with over 890 firms and a 3.7-fold increase in cumulative startup formation. This points to an ecosystem that is still expanding rapidly and attracting new entrants, investment, and experimentation. This is precisely why competition policy has entered conversations. While core concerns on infrastructure, talent, distribution, and access to foundation models are relevant, the policy question of how to preserve contestability without undermining collaboration is equally timely, especially as AI systems grow in capability.

The Competition Commission of India’s (CCI’s) market study on AI and competition, released in October 2025, identifies issues that warrant close attention, including critical inputs like cloud infrastructure, compute resources, data, and foundation models. Access to these inputs will play a key role in determining how competitive AI markets evolve over time.

Also, the CCI emphasis on market studies, stakeholder engagement, advocacy, and ex-post enforcement reflects an important recognition: AI markets remain dynamic, technologically fluid, and far from settled. High market shares held by a few large players should thus warrant careful monitoring and targeted scrutiny, but not a spree of enforcement activities or ex-ante obligations absent evidence of foreclosure, exclusionary conduct, or likely consumer harm.

The EU’s Digital Markets Act (DMA) was introduced to address concerns about the power of large digital platforms. While its long-term effects remain uncertain, early evidence suggests broad ex-ante obligations can have unintended consequences. The same is visible in AI markets that are citing regulatory uncertainty under the DMA and related EU rules. A 2025 peer-reviewed study of more than 1,000 startup and investment records across 27 EU member states found the DMA was linked with lower levels of market entry and investment in regulated sectors.

The experience carries a clear lesson for India: As a CUTS submission to the OECD Global Forum on Competition cautioned, importing a stringent, DMA-style ex-ante regime could stifle innovation and slow the growth of an expanding digital economy. The concern applies to disproportionate enforcement: Penalising scale or integration without evidence of exclusionary conduct or consumer harm could deter the investment and tie-ups local firms need to scale at a critical stage in the development of India’s AI ecosystem.

India’s AI ecosystem is still building scale and impact. Domestic firms are competing to develop products suited to our economic, linguistic, and social realities, while investors continue to deploy capital into an evolving market. The CCI has projected that India’s AI market could grow from $11.17 billion in 2025 to $131.31 billion by 2032, reflecting the scale of the opportunity.

Preserving space for India’s AI ecosystem to scale, however, doesn’t mean leaving anti-competitive conduct unchecked. Competition law already provides tools to address anti-competitive agreements, exclusionary conduct, and abuse of dominance where evidence warrants action. This framework could be reinforced by strengthening capacity for vigilant monitoring, evidence-based enforcement, and structured engagement with the firms shaping India’s AI ecosystem, including cloud providers, chip suppliers, model developers, and startups. Continued investment in technical and economic expertise would help the CCI to distinguish pro-competitive scale from genuinely exclusionary conduct, ensuring that intervention addresses demonstrable harm without stifling the firms driving the country’s growth.

India’s AI ambitions depend on many factors—entrepreneurial talent, investment, research capability, public infrastructure, government support, and access to global innovation networks. Sarvam’s journey — from a two-person founding team in 2023 to unveiling sovereign language models on a national stage in under three years — reflects the convergence of these elements. It happened because the ecosystem allowed it to. The next generation of Indian AI firms will emerge from similar combinations of domestic ingenuity and international collaboration.

The shape competition policy takes will also influence how India’s AI ecosystem evolves. Recent evidence suggests the ecosystem remains dynamic and contestable: A survey of 227 Indian AI firms found widespread multi-cloud adoption, limited use of exclusivity clauses, and falling compute costs, indicating that firms continue to enjoy meaningful choice across key layers of the AI ecosystem. A proportionate competition regime can preserve the investment, partnerships, and access to critical inputs that underpin innovation. A calibrated approach would protect the conditions that allow such breakthroughs to happen; a premature one risks foreclosing them before they begin.

The writers are respectively MD of BowerGroupAsia and senior economist.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.