INDIA'S AI COMPUTE CONUNDRUM

While building a sovereign compute infrastructure may seem like a good move in the short term, the process impedes market dynamics and creates bureaucratic hurdles for both providers and users of compute infrastructure

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The Ministry of Electronics and Information Technology announced the launch of a continuous empanelment process for AI compute providers, which allows firms to apply on an ongoing basis to supply AI compute and related services. While this may seem like a good move in the short term, the process impedes market dynamics and creates bureaucratic hurdles for both providers and users of compute infrastructure. Allowing markets to function freely and offer services that meet consumer needs is necessary for long-term sustainability.

Current approach: challenges

The IndiaAI compute mission follows a bidding process where empanelled vendors must match the lowest bid price for the AI compute and services. Some vendors undercut the market price by as much as 89% by "doing things that were never done before to reduce operational costs", as one vendor put it. In addition, the IndiaAI mission will subsidise up to 40% of the compute costs for eligible users addressing priority use cases such as healthcare and education.

The government’s move to empanel private compute providers and offer additional subsidies stimulates demand in the near term. This might support the development of India-based compute providers. In addition, if done well, the continuous empanelment process could prevent cartelisation among compute providers and allow newer providers to enter the market. However, it is worth asking if the bidding process that requires matching the lowest bid price is sustainable and how effectively it addresses the goals of developing sovereign computing infrastructure and encouraging innovation in priority areas.