AI growth beyond metros

OVER TIME, FOCUS SHOULD SHIFT TO NURTURING LOCAL STARTUPS THAT BUILD REGION-SPECIFIC AI SOLUTIONS

- AMIT KAPOOR

LARGE URBAN CENTRES are leading the way in creating value in India’s artificial intelligence (AI) story. The economic value from AI is rapidly clustering in these metropolitan cities, and smaller cities risk getting sidelined. For India, it is crucial that AI development is inclusive and tier-II and -III cities equally benefit from the value that AI generates. Moving forward, the vision for these smaller cities must be grounded in developing indigenous and region-specific AI models that cater to the specific needs of their informal and small-scale businesses. Achieving this will require AI policies that not only differ from those designed for metropolitan innovation hubs but are also aligned with the realities of smaller cities.

When it comes to AI development in metropolitan cities, the primary constraints are limited to AI compute deficits, data availability, workforce shortage, and limited R&D. However, the challenges for smaller cities are quite different and fundamental. Tier-II and -III cities struggle with structural barriers including limited internet and broadband connectivity, inadequacy of supporting infrastructure, and affordability concerns.

Despite deep internet penetration in India, the quality of the internet remains uneven, with significant regional disparities. According to the Ookla Speed test Global Index, Mumbai ranked 123rd out of 200 cities for fixed broadband speeds in February 2025. Mumbai recorded download speeds of 58.24 Mbps. If a large metropolitan area faces such speed constraints, the challenges are likely to be severe in smaller towns. The penetration of high-speed fibre connection is also low for urban centres. Research from Ashoka University shows that in urban areas, which include tier-II and tier-III cities, only 15.3% of households have access to high-speed fibre connections. Low high-speed fibre penetration and poor internet quality can have a direct impact on AI development prospects.