India risks becoming an AI rule-taker unless it builds standards fast

Recently I reviewed a policy briefing circulated by an international standards consortium and followed it with a long exchange of emails with regulators and practitioners. One line stood out: “Governance capacity now predicts AI productivity more reliably than research output.” It was an understated sentence, but it captured a shift that has been accelerating quietly beneath the surface. The world is no longer defined by who builds the most advanced AI models — it is defined by who can govern them.

A deep inversion is underway in the global technology race. For most of the past decade, the contest centred on model size,compute access and elite talent. Now, the decisive factor is governance — the institutional machinery that determines whether powerful AI systems can operate safely, at scale and with international credibility.

Nations that grasp this are laying the architecture of the next economic order. Those that don’t risk becoming technologically impressive yet economically sidelined. For years, AI governance occupied a philosophical perimeter. Committees drafted elegant ethical principles. Governments published white papers. Public debates revolved around fairness, transparency and bias.

Meanwhile, AI quietly colonised the arteries of modern life: financial flows, supply chains, healthcare diagnostics, research generation, legislative drafting and defence logistics. Governance has moved from the dominion of ethics to the domain of economics — from moral theory to hard infrastructure. This shift becomes clearer when looking at how major powers are building their regulatory architectures. Start with the European Union. The EU AI Act is often criticised as heavy-handed or innovation-averse. But that caricature misses its strategic purpose. The Act creates a continent-wide compliance regime that functions like a “digital passport” for AI systems. If a model meets EU standards, it can operate across 27 markets without renegotiating trust or liability each time. That is not friction — it is market design. Companies across India,the US and East Asia are now tuning their systems to EU specifications because those standards unbar one of the world’s most valuable unified markets. In effect,the EU is exporting governance by defining the terms of access.

The United States is taking a characteristically decentralised path. The NIST AI Risk Management Framework has quietly become the global grammar of AI

governance. It gives companies a structured vocabulary for documenting risks, testing validity and producing auditable evidence — precisely the kind regulators and insurers demand.

And American governance spreads through supply chains: cloud providers, banks, defence contractors and hospitals now require vendors to align with NIST standards. Compliance becomes a passport into the US market and therefore a global expectation. This is soft power deployed through procurement, not treaties.

Corporate realities underscore just how essential governance has become. A 2025 Anaconda practitioner survey found that nearly 40 per cent of AI teams regularly encounter security vulnerabilities and about two-thirds face deployment delays due to inconsistent safeguards.

Meanwhile, the OECD’s 2024 AI Readiness Index delivers a blunt warning: countries with weak governance regimes convert far less innovation into productivity. Problems like unmonitored model drift, contaminated datasets and opaque decision pipelines are not abstract ethical dilemmas; they are operational chokepoints with macroeconomic consequences. This is where India enters the story — not as an outlier but as an emerging power that needs to choose its trajectory carefully.

India’s AI ecosystem is expanding rapidly. The IndiaAI Mission, the DPDP Act, India’s new foundation model efforts, a thriving startup base and world-class engineering talent all signal ambition. Yet the country still lacks the governance infrastructure necessary to convert ambition into global advantage. There is no national AI safety standards body. No unified auditing framework. No compliance architecture comparable to the EU’s digital passport. Governance remains fragmented, largely sectoral and heavily dependent on corporate self-regulation.

That fragmentation has consequences. India produces excellent research and has a vibrant entrepreneurial culture, but without predictable governance, high-stakes AI systems in healthcare, fintech, defence and public services remain harder to certify internationally. Investors — particularly global ones — prefer regulatory certainty over regulatory improvisation. For a country aiming to build semiconductor capability, attract global AI investment and export digital public infrastructure in the spirit of UPI, the absence of unified governance is becoming a strategic constraint.

There is also a deeper structural challenge: governance creates lock-in. Once standards for AI safety, transparency and auditability are established, they shape global markets for decades.

Early movers like the EU, the US and China are defining the compliance expectations the rest of the world will have to adopt. Late movers become rule-takers in a landscape where rules themselves are a form of industrial policy. If India does not accelerate the construction of governance institutions, it may inherit frameworks designed elsewhere.This becomes even more urgent as the nature of AI shifts. The rise of agentic systems — models that plan, act, adapt and coordinate with minimal human oversight — will amplify governance gaps. These systems introduce risks not merely in degree but in kind. Without secure model supply chains, lineage tracking, behaviour-auditing tools and real-time monitoring, agentic systems become destabilising. With proper governance, they become national growth multipliers.

History offers a consistent pattern. The Industrial Revolution favoured nations that standardised rail gauges, not just those that built locomotives. Aviation leadership went to countries that created airworthiness codes, not merely aircraft. The global internet scaled fastest in jurisdictions that developed interoperability protocols

and liability frameworks early. Governance has always been the invisible architecture of technological advantage.

AI will follow the same logic. Every country will build AI models. Only a few will build the institutions capable of safely and credibly deploying them at global scale. Those institutions will determine where capital flows, which technologies become trusted and whose innovations set the global norms.

We are entering a decade in which governance becomes the new industrial policy. Ports defined earlier centuries, power grids defined the last and digital payments defined the previous decade. In the era ahead, model-audit frameworks, safety benchmarks, risk classifications and compliance passports will determine economic leadership. The race ahead is not a contest of algorithms. It is a contest of institutions. Countries that understand this will lead. Countries that don’t will watch the future being written elsewhere.

“World-class talent and a fast-growing AI sector, but no unified national safety standards or audit framework yet. Strong governance could change India into a global AI exporter.”

Author is a theoretical physicist at the University of North Carolina, United States; views are personal