The Hidden Cost of Free AI: What India Must Do to Protect Its AI Ecosystem

Rahul Kumar

Intern - Policy & Advocacy, CyberPeace

PUBLISHED ON

Nov 8, 2025

The global race for Artificial Intelligence is heating up, and India has become one of its most important battlegrounds. Over the past few months, tech giants like OpenAI (ChatGPT), Google (Gemini), X (Grok), Meta (Llama), and Perplexity AI have stepped up their presence in the country, not by selling their AI tools, but by offering them free or at deep discounts.

At first, it feels like a huge win for India’s digital generation. Students, professionals, and entrepreneurs today can tap into some of the world’s most powerful AI tools without paying a rupee. It feels like a digital revolution unfolding in real time. Yet, beneath this generosity lies a more complicated truth. Experts caution that this wave of “free” AI access isn’t without strings attached. This offering impacts how India handles data privacy, the fairness of competition, and the pace of the development of homegrown AI innovation that the country is focusing on.

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The Market Strategy: Free Now, Pay Later

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The choice of global AI companies to offer free access in India is a calculated business strategy. With one of the world’s largest and fastest-growing digital populations, India is a market no tech giant wants to miss. By giving away their AI tools for free, these firms are playing a long game:

Securing market share early: Flooding the market with free access helps them quickly attract millions of users before Indian startups have a chance to catch up. Recent examples are Perplexity, ChatGPT Go and Gemini AI which are offering free subscriptions to Indian users.
Gathering local data: Every interaction, every prompt, question, or language pattern, helps these models learn from larger datasets to improve their product offerings in India and the rest of the world. Nothing is free in the world - as the popular saying goes, “if something is free, means you are the product. The same goes for these AI platforms: they monetise user data by analysing chats and their behaviour to refine their model and build paid products. This creates the privacy risk as India currently lacks specific laws to govern how such data is stored, processed or used for AI training.
Create user dependency: Once users grow accustomed to the quality and convenience of these global models, shifting to Indian alternatives, even when they become paid, will be difficult. This approach mirrors the “freemium” model used in other tech sectors, where users are first attracted through free access and later monetised through subscriptions or premium features, raising ethical concerns.

Impact on Indian Users

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For most Indians, the short-term impact of free AI access feels overwhelmingly positive. Tools like ChatGPT and Gemini are breaking down barriers by democratising knowledge and making advanced technology available to everyone, from students, professionals, to small businesses. It’s changing how people learn, think and do - all without spending a single rupee.But the long-term picture isn’t quite as simple. Beneath the convenience lies a set of growing concerns:

Data privacy risks: Many users don’t realise that their chats, prompts, or queries might be stored and used to train global AI models. Without strong data protection laws in action, sensitive Indian data could easily find its way into foreign systems.
Overdependence on foreign technology: Once these AI tools become part of people’s daily lives, moving away from them gets harder — especially if free access later turns into paid plans or comes with restrictive conditions.
Language and cultural bias: Most large AI models are still built mainly around English and Western data. Without enough Indian language content and cultural representation, the technology risks overlooking the very diversity that defines India

Impact on India’s AI Ecosystem

India’s Generative AI market, valued at USD $ 1.30 billion in 2024, is projected to reach 5.40 billion by 2033. Yet, this growth story may become uneven if global players dominate early.

Domestic AI startups face multiple hurdles — limited funding, high compute costs, and difficulty in accessing large, diverse datasets. The arrival of free, GPT-4-level models sharpens these challenges by raising user expectations and increasing customer acquisition costs.

As AI analyst Kashyap Kompella notes, “If users can access GPT-4-level quality at zero cost, their incentive to try local models that still need refinement will be low.” This could stifle innovation at home, resulting in a shallow domestic AI ecosystem where India consumes global technology but contributes little to its creation.

CCI’s Intervention: Guarding Fair Competition

The Competition Commission of India (CCI) has started taking note of how global AI companies are shaping India’s digital market. In a recent report, it cautioned that AI-driven pricing strategies such as offering free or heavily subsidised access could distort healthy competition and create an uneven playing field for smaller Indian developers.

The CCI’s decision to step in is both timely and necessary. Without proper oversight, such tactics could gradually push homegrown AI startups to the sidelines and allow a few foreign tech giants to gain disproportionate influence over India’s emerging AI economy.

What the Indian Government Should Do

To ensure India’s AI landscape remains competitive, inclusive, and innovation-driven, the government must adopt a balanced strategy that safeguards users while empowering local developers.

1. Promote Fair Competition

The government should mandate transparency in free access offers, including their duration, renewal terms, and data-use policies. Exclusivity deals between foreign AI firms and telecom or device companies must be closely monitored to prevent monopolistic practices.

2. Strengthen Data Protection

Under the Digital Personal Data Protection (DPDP) Act, companies should be required to obtain explicit consent from users before using data for model training. Encourage data localisation, ensuring that sensitive Indian data remains stored within India’s borders.

3. Support Domestic AI Innovation

Accelerate the implementation of the IndiaAI Mission to provide public compute infrastructure, open datasets, and research funding to local AI developers like Sarvam AI, an Indian company chosen by the government to build the country's first homegrown large language model (LLM) under IndianAI Mission.

4. Create an Open AI Ecosystem

India should develop national AI benchmarks to evaluate all models, foreign or domestic, on performance, fairness, and linguistic diversity. And at the same time, they have their own national data Centre to train their indigenous AI models.

5. Encourage Responsible Global Collaboration

Speaking at the AI Action Summit 2025, the Prime Minister highlighted that governance should go beyond managing risks and should also promote innovation for the global good. Building on this idea, India should encourage global AI companies to invest meaningfully in the country’s ecosystem through research labs, data centres, and AI education programmes. Such collaborations will ensure that these partnerships not only expand markets but also create value, jobs and knowledge within India.

Conclusion

The surge of free AI access across India represents a defining moment in the nation’s digital journey. On one hand, it’s empowering millions of people and accelerating AI awareness like never before. On the other hand, it poses serious challenges from over-reliance on foreign platforms to potential risks around data privacy and the slow growth of local innovation. India’s real test will be finding the right balance between access and autonomy, allowing global AI leaders to innovate and operate here, but within a framework that protects the interests of Indian users, startups, and data ecosystems. With strong and timely action under the Digital Personal Data Protection (DPDP) Act, the IndiaAI Mission, and the Competition Commission of India’s (CCI) active oversight, India can make sure this AI revolution isn’t just something that happens to the country, but for it.

References

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PUBLISHED ON

Nov 8, 2025

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Agentic AI in Indian Business: Ushering in the Third Wave of Artificial Intelligence

May 5, 2025

The world of Artificial Intelligence is entering a new phase with the rise of Agentic AI, often described as the third wave of AI evolution. Unlike earlier systems that relied on static models (that learn from the information that is fed) and reactive outputs, Agentic AI introduces intelligent agents that can make decisions, take initiative, and act autonomously in real time. These systems are designed to require minimal human oversight while actively collaborating and learning continuously. Such capabilities indicate an incoming shift, especially in the ways in which Indian businesses can function. For better understanding, Agentic AI is capable of streamlining operations, personalising services, and driving innovations at scale.

India and Agentic AI

Building as we go, India is making continuous strides in the AI revolution- deliberating on government frameworks, and simultaneously adapting. At Microsoft's Pinnacle 2025 summit in Hyderabad, India's pivotal role in shaping the future of Agentic AI was brought to the spotlight. With over 17 million developers on GitHub and ambitions to become the world's largest developer community by 2028, India's tech talent is gearing up to lead global AI innovations. Microsoft's Azure AI Foundry, also highlighted the country's growing influence in the AI landscape.

Indian companies are actively integrating Agentic AI into their operations to enhance efficiency and customer experience. Zomato is leveraging AI agents to optimise delivery logistics, ensuring timely and efficient service. Infosys has developed AI-driven copilots to assist developers in code generation, reducing development time, requiring fewer people to work on a particular project, and improving software quality.

As per a report by Deloitte, the Indian AI market is projected to grow potentially $20 billion by 2028. However, this is accompanied by significant challenges. 92% of Indian executives identify security concerns as the primary obstacle to responsible AI usage. Additionally, regulatory uncertainties and privacy risks associated with sensitive data were also highlighted.

Challenges in Adoption

Despite the enthusiasm, several barriers hinder the widespread adoption of Agentic AI in India:

Skills Gap: While the AI workforce is expected to grow to 1.25 million by 2027, the current growth rate of 13% is considered to be insufficient with respect to the demands of the market.
Data Infrastructure: Effective AI systems require robust, structured, and accessible datasets. Many organisations lack the necessary data maturity, leading to flawed AI outputs and decision-making failures.
Trust and Governance: Building trust in AI systems is crucial. Concerns over data privacy, ethical usage, and regulatory compliance require robust governance frameworks to ensure the adoption of AI in a responsible manner.
Looming fear of job loss: As AI continues to take up more sophisticated roles, a general feeling of hesitancy with respect to the loss of employment/human labour might come in the way of adopting such measures.
Outsourcing: Currently, most companies prefer outsourcing or buying AI solutions rather than building them in-house. This gives rise to the issue of adapting to evolving needs.

The Road Ahead

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To fully realise the potential of Agentic AI, India must address the following challenges :

Training the Workforce: Initiatives and workshops tailored for employees that provide AI training can prove to be helpful. Some relevant examples are Microsoft’s commitment to provide AI training to 2 million individuals by 2025 and Infosys's in-house AI training programs.
Data Readiness: Investing in modern data infrastructure and promoting data literacy are essential to improve data quality and accessibility.
Establishing Governance Frameworks: Developing clear regulatory guidelines and ethical standards will foster trust and facilitate responsible AI adoption. Like the IndiaAI mission, efforts regarding evolving technology and keeping up with it are imperative.

Agentic AI holds unrealised potential to transform India's business landscape when coupled with innovation and a focus on quality that enhances global competitiveness. India is at a position where by proactively addressing the existing challenges, this potential can be realised and set the foundation for a new technological revolution (along with in-house development), solidifying its position as a global AI leader.

References

India’s Government Crackdown on Obscene Content on OTT Platforms

July 28, 2025

Introduction

Over-the-Top (OTT) streaming platforms have become a significant part of Indian entertainment consumption, offering users the ability to watch films, web series, and short-format videos directly online. These platforms operate on a subscription-based model, allowing for creative freedom, but they also lack clear accountability. On certain platforms, some content has been criticised for focusing on sensational or sexually explicit themes, particularly targeting young viewers seeking risqué entertainment. Such applications lack strong age verification mechanisms and offer ‘user access’ with minimal restrictions, which raises serious concerns about exposure to obscene content. This has triggered serious concerns among regulators, civil society organisations, advocacy and parental groups about the accessibility of such material and its potential influence, especially on minors.

Blocking order issued by the Ministry of Broadcasting and Information (MIB)

On 23rd July 2025, the Government of India, invoking powers under the Information Technology Act, 2000, and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, has issued a ‘blocking order’ against 25 OTT platforms. A total of 26 websites and 14 mobile applications of the said OTT platforms were on the list, including several prominent OTT platforms for alleged distribution of obscene, vulgar and pornographic content in some cases. This regulatory action follows previous statutory advice and repeated warnings to the platforms in question, some of which continued to operate through new domains and disobeyed Indian laws and regulations.

This action was taken by the Ministry of Broadcasting and Information (MIB) in consultation with Ministry of Home Affairs, Ministry of Women and Child Development, Ministry of Electronics and Information Technology, Department of Legal Affairs, industry bodies and experts in the field of women rights and child rights.

The list of OTT Platforms covered under the said ‘Blocking Order’

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The list includes - Big Shots App, Desiflix, Boomex, NeonX VIP, Navarasa Lite, Gulab App, Kangan App, Bull App, ShowHit, Jalva App, Wow Entertainment, Look Entertainment, Hitprime, Fugi, Feneo, ShowX, Sol Talkies, Adda TV, ALTT, HotX VIP, Hulchul App, MoodX, Triflicks, Ullu, and Mojflix.

The government has explicitly directed Internet Service Providers (ISP’s) to disable or remove public access to these websites within India.

Recent Judicial and Centre’s Interventions

To refresh the memory, last year in March 2024, the Ministry of I&B blocked 18 OTT Platforms for Obscene and Vulgar Content.
In April 2025, the Apex Court of India heard a petition on the prohibition of streaming of sexually explicit content on over-the-top (OTT) and social media platforms. In response to the petition, the Apex court stated, ‘It's not our domain, the centre has to take action and highlighted the need for executive action in the matter. The apex court has also issued notice to the Centre, OTT platforms, as well as social media platforms in response to a petition seeking a ban on sexually explicit content. (Uday Mahurkar & Ors. v. Union of India & Ors. [WP(C) 313/2025])
The following recent blocking order dated 23rd July 2025 by the Ministry of I&B is a welcome and commendable step that reflects the government’s firm stance against illicit content on OTT platforms. Kangana Ranaut, Actress and politician, while speaking to a news agency, has appreciated the government's move to ban OTT platforms such as Ullu, ALTT, and Desiflix for showing soft porn content.

Conclusion

The centre’s intervention sends a clear message that OTT platforms cannot remain exempt from accountability. The move is a response to the growing concern of harms caused by unregulated digital content and non-compliances by the platforms, particularly in relation to illicit material, and broader violations of decency laws in India. However, the enforcement must now go beyond issuing orders and require a robust measurable compliance framework for OTT platforms.

In today’s fast-paced era, when subscription-based content platforms place vast libraries at users' fingertips, the government's action is necessary and proportionate, marking a decisive step toward safer digital and healthy regulated environments.

References

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Proactive Moderation for Digital Safety: Insights from WhatsApp’s Crackdown on Fraud in India

April 11, 2025

Introduction

The 2023-24 annual report of the Union Home Ministry states that WhatsApp is among the primary platforms being targeted for cyber fraud in India, followed by Telegram and Instagram. Cybercriminals have been conducting frauds like lending and investment scams, digital arrests, romance scams, job scams, online phishing etc., through these platforms, creating trauma for victims and overburdening law enforcement, which is not always the best equipped to recover their money. WhatsApp’s scale, end-to-end encryption, and ease of mass messaging make it both a powerful medium of communication and a vulnerable target for bad actors. It has over 500 million users in India, which makes it a primary subject for scammers running illegal lending apps, phishing schemes, and identity fraud.

Action Taken by Whatsapp

As a response to this worrying trend and in keeping with Rule 4(1)(d) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, [updated as of 6.4.2023], WhatsApp has been banning millions of Indian accounts through automated tools, AI-based detection systems, and behaviour analysis, which can detect suspicious activity and misuse. In July 2021, it banned over 2 million accounts. By February 2025, this number had shot up to over 9.7 million, with 1.4 million accounts removed proactively, that is, before any user reported them. While this may mean that the number of attacks has increased, or WhatsApp’s detection systems have improved, or both, what it surely signals is the acknowledgement of a deeper, systemic challenge to India’s digital ecosystem and the growing scale and sophistication of cyber fraud, especially on encrypted platforms.

CyberPeace Insights

Under Rule 4(1)(d) of the IT Rules, 2021, significant social media intermediaries (SSMIs) are required to implement automated tools to detect harmful content. But enforcement has been uneven. WhatsApp’s enforcement action demonstrates what effective compliance with proactive moderation can look like because of the scale and transparency of its actions.
Platforms must treat fraud not just as a content violation but as a systemic abuse of the platform’s infrastructure.
India is not alone in facing this challenge. The EU’s Digital Services Act (DSA), for instance, mandates large platforms to conduct regular risk assessments, maintain algorithmic transparency, and allow independent audits of their safety mechanisms. These steps go beyond just removing bad content by addressing the design of the platform itself. India can draw from this by codifying a baseline standard for fraud detection, requiring platforms to publish detailed transparency reports, and clarifying the legal expectations around proactive monitoring. Importantly, regulators must ensure this is done without compromising encryption or user privacy.
WhatsApp’s efforts are part of a broader, emerging ecosystem of threat detection. The Indian Cyber Crime Coordination Centre (I4C) is now sharing threat intelligence with platforms like Google and Meta to help take down scam domains, malicious apps, and sponsored Facebook ads promoting illegal digital lending. This model of public-private intelligence collaboration should be institutionalized and scaled across sectors.

Conclusion: Turning Enforcement into Policy

WhatsApp’s mass account ban is not just about enforcement but an example of how platforms must evolve. As India becomes increasingly digital, it needs a forward-looking policy framework that supports proactive monitoring, ethical AI use, cross-platform coordination, and user safety. The digital safety of users in India and those around the world must be built into the architecture of the internet.

References

‍

The Hidden Cost of Free AI: What India Must Do to Protect Its AI Ecosystem

The Market Strategy: Free Now, Pay Later

Impact on Indian Users

Impact on India’s AI Ecosystem

CCI’s Intervention: Guarding Fair Competition

What the Indian Government Should Do

Conclusion

References

Related Blogs

India and Agentic AI

Challenges in Adoption

The Road Ahead

References

Introduction

Blocking order issued by the Ministry of Broadcasting and Information (MIB)

The list of OTT Platforms covered under the said ‘Blocking Order’

Recent Judicial and Centre’s Interventions

Conclusion

References

Introduction

Action Taken by Whatsapp

CyberPeace Insights

Conclusion: Turning Enforcement into Policy

References

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