Artificial Intelligence as a Catalyst for Trade Growth

General Studies Paper-3

Context

• The World Trade Organization’s (WTO) World Trade Report 2025 found that Artificial Intelligence (AI) has the potential to boost global trade by up to nearly 40 per cent over the next 15 years, provided critical policy and infrastructure gaps are plugged.

AI as a Driver of Trade-Led Growth

• Trade facilitation: AI in logistics and customs can reduce trade costs by up to 15%, according to WTO simulations.
• Productivity boost: AI-driven automation enhances efficiency across manufacturing and services, expanding competitiveness.
• Digitally deliverable services: Legal-tech, AI-driven coding, telemedicine, and e-learning are projected to grow by over 40% by 2040.
• AI-enabling goods: Trade in chips, servers, and sensors forms the backbone of the AI economy, valued at USD 2.3 trillion (2023).

Harnessing AI for India’s Trade Transformation

• Strengthening Services Exports: India exported USD 250+ billion worth of IT and IT-enabled services in 2023-24, making it a global leader in digitally deliverable services.
  • AI can enhance India’s dominance by boosting exports in software solutions, AI-powered healthcare (telemedicine), fintech, e-learning, and legal-tech services.
• Enhancing Manufacturing Competitiveness: AI in predictive maintenance, quality control, and supply chain optimisation can help Indian manufacturers compete globally.
  • Integration with Make in India and PLI schemes can enable India to capture more of the global value chains (GVCs).
• Boosting Agricultural Trade: AI-enabled precision farming, yield forecasting, and logistics can reduce wastage and increase export competitiveness in agri-products.
• Empowering SMEs and Startups: AI tools for translation, compliance, and market intelligence can help Indian SMEs overcome entry barriers in international trade.
  • With 63 million MSMEs in India, AI adoption could significantly expand their participation in exports.

Initiatives taken by India

• NITI Aayog’s “#AIforAll” (2018) laid out India’s first comprehensive strategy on AI, focusing on healthcare, agriculture, education, smart cities, and smart mobility.
• The India Semiconductor Mission (ISM), approved in 2021 with a ₹76,000 crore outlay, aims to develop a robust domestic semiconductor ecosystem by providing financial incentives for chip fabrication, display manufacturing, and design.
• The IndiaAI mission with an outlay of Rs.10,371.92 crore, established a comprehensive ecosystem catalyzing AI innovation through strategic programs and partnerships across the public and private sectors.

What are the Challenges?

• Digital divide: Only 41% of small firms globally use AI, compared to over 60% of large firms. In low- and lower-middle-income countries, AI adoption is below 33%.
• Inequality in income gains: Without catch-up, high-income economies could see income growth of ~14%, while low-income economies would gain only ~8% by 2040.
• Regulatory fragmentation: Divergent AI rules across jurisdictions increase compliance costs and may splinter global trade flows.
• Risks of Concentration: A few large firms dominate AI development and infrastructure, raising concerns about monopolistic dependencies and control over trade benefits.

Way Ahead

• Domestic measures:
  • Invest in broadband, cloud infrastructure, and affordable AI hardware.
  • Implement national skilling programmes to prepare workers for AI-integrated industries.
  • Ensure competition policy prevents monopolistic dominance.
• Global cooperation:
  • Harmonise AI standards, ethical rules, and data governance frameworks.
  • Expand WTO’s capacity-building for poorer economies.
  • Promote multilateral consensus to avoid digital fragmentation.