India well placed to benefit from AI, could spur investment cycle

India could reap gains from AI

India is poised to reap strong gains from artificial intelligence (AI), with the potential to revive private investment, World Bank chief economist for South Asia Franziska Ohnsorge said on October 4.

“India is well placed to benefit from AI… it is being adopted really aggressively. So, people are finding ways of using it, and with it will come investment. Whether that is big enough to move the macroeconomic numbers, I don't know,” Ohnsorge said in a media interaction.

AI Readiness and Rapid Adoption

Ohnsorge underlined that India’s AI readiness index is “much higher than other emerging markets and developing economies, almost advanced economy level.” Adoption has been particularly strong in the BPO sector, where job postings requiring AI skills have doubled since ChatGPT’s release, now making up 12% of all postings—about three times higher than in other sectors.
This momentum is showing up in services exports. “Since the release of ChatGPT, there's been a 30% increase in computer services exports, whereas overall service exports have just plateaued,” she said.

Private Investment: Slowing, But Still Stronger Than Peers

Private investment growth in India has slowed since the pandemic, in contrast to other emerging markets where it has picked up. Public investment, however, has accelerated. Even with the slowdown, Ohnsorge noted, “private investment growth in India remained higher than in most emerging and developing economies.”

Foreign direct investment (FDI), she cautioned, is weaker by international standards.

Trade Deals and Manufacturing Prospects

Beyond services, Ohnsorge said tariff cuts and new trade agreements could ignite a manufacturing push. “Mexico, Vietnam, have like 50 percent of GDP market access with their trading partners. For India, it's 12 percent of GDP. If you add the UK agreement, EU, Australia, and Canada, and possibly the US, then India’s market access will also rise to 50 percent of GDP.”
Calling the UK trade agreement “the most ambitious in a decade,” she noted it covers not only tariffs but also services and labour mobility. “Even if one trading partner is becoming less accessible, others may become more accessible with these trade agreements,” she said.

A Possible Breakthrough

The economist suggested that AI-driven services exports, combined with goods-sector reforms and factor market deregulation, could unlock a structural breakthrough.

“If you had technology moving the services export side, or in general, the services sector, and you had done a trade agreement on the goods side, I think that could be a breakthrough. And if on top of that, you had the deregulation commission and factor market reforms, I think that could make a big difference,” she said.

The World Bank will release its South Asia update on October 7. Its June outlook had pegged India’s growth forecast at 6.5% for FY26 and 6.7% for the next fiscal.