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AI as a Transformative Force in Indian Technology

In every significant industrial shift, there is a pivotal moment when a new force triggers a complete transformation of the ecosystem, revealing stagnation, altering hierarchies, and driving the need for reinvention. For the current landscape of technology in India, artificial intelligence (AI) serves as this transformative force. It acts as the catalyst for the nation’s entire tech value chain — impacting everything from traditional IT services to startups, public sector units, academic institutions, and regulatory bodies.

The Catfish Effect: A New Competitor Driving Change

The concept known as the “Catfish Effect” draws its inspiration from aquaculture. When sardines were transported alive over long distances, they would often arrive lethargic and unfit for consumption. Fishermen discovered that introducing a single catfish into the tank kept the sardines active and agile throughout their journey, ensuring they arrived fresher and of higher quality. The sardines thrived because they had to stay alert to the threat posed by the catfish.

In the realms of business and technology, this analogy underscores how the emergence of a powerful new player or disruptive concept can revitalize a complacent ecosystem, compelling existing players to adapt, innovate, and fast-track their evolution. When comfort leads to complacency, a catfish introduces a sense of urgency. It redefines standards and encourages the entire ecosystem to progress.

From Imitators to Industry Leaders

Few contemporary instances exemplify the Catfish Effect better than Tesla’s entry into China. In 2019, China made an exceptional alteration to its regulations: it permitted Tesla to construct and fully own its Gigafactory in Shanghai. Historically, Beijing required foreign automakers to form 50-50 joint ventures with local firms as a protective measure for domestic businesses.

However, for Tesla, the rules were reconfigured. China provided tax incentives, land free of charge, and full foreign ownership. This was a calculated strategy, demonstrating that China sought a catfish. Tesla introduced state-of-the-art manufacturing processes, integrated software, innovative design, battery technology, and a culture of constant improvement.

Its entrance prompted a significant shock to China’s domestic electric vehicle (EV) manufacturers as Tesla quickly became the leader in EV sales. Local companies like BYD, NIO, and Xpeng now had a benchmark for world-class performance and an understanding of the distance they needed to cover to compete.

In just five years, China’s EV sector underwent a remarkable transformation, shifting from imitation to genuine global competitiveness. Local manufacturers adopted Tesla’s methodologies such as giga-casting, autonomous driving using cameras, advanced battery chemistry, and immersive in-car entertainment.

While China has faced criticism for replicating foreign intellectual property, this transformation extended beyond mere imitation; it was a rapid integration of knowledge. As Tesla began sourcing components locally, suppliers evolved and started offering their capabilities to domestic Original Equipment Manufacturers (OEMs).

The influence of the catfish extended across the entire value chain, enhancing sophistication from design through to manufacturing and supply chains. By 2024, China was producing more than 10 million electric vehicles yearly, and Tesla had fallen to fifth in market share. Companies such as BYD began to expand globally, threatening to gain significant market shares in Europe and Southeast Asia through unmatched value at competitive prices.

Thus, the catfish had fulfilled its purpose: by entering the ecosystem, it had made the sardines more efficient, smarter, and competitive.

AI: The Catfish in India’s Technology Arena

AI is now playing a similar role in India, not as an imported commodity, but as a new guiding principle that is set to reshape the landscape of Indian technology. Just as Tesla forced China’s automotive sector to face its next challenge, AI is compelling Indian technology to reassess its assumptions, operational frameworks, and avenues for innovation.

The Indian IT services sector, the startup scene, the deep-tech PSU community, academic institutions, and government all find themselves at a crucial juncture. Each must now recalibrate its strengths to remain pertinent in a world where intellect supersedes effort as the principal input for production.

Indian IT: Evolution from Services to Systemic Transformation

The Indian IT services market, valued at $250 billion and employing over six million individuals, has thrived on process excellence and extensive human resources. However, the narrative surrounding AI now presents a challenge to both of these foundational advantages. Generative AI models can now automate coding, testing, documentation, and aspects of change management.

The service model that was instrumental in Indian IT’s growth must now adapt to become a go-to-market channel for enterprise transformation leveraging AI. The coming decade will demand a shift from being merely “services vendors that execute projects” to “systems that think in real time.” The future leader in Indian IT will be someone who can develop proprietary models for businesses, integrate AI into client frameworks, and monetise client data as a vital resource.

The frontrunners will create AI-driven service firms, focusing less on merely expanding human resources, and more on leveraging algorithms. Those who regard AI as merely a tool for cost savings will be overtaken by those who recognise it as an engine for new capabilities that can boost revenues.

For example, Infosys recently unveiled Topaz Fabric, described as a “composable stack” of AI agents, services, and models aimed at helping enterprises derive value quickly and effectively. Human specialists will oversee, train, and continually contextualise the AI agents to ensure accuracy, regulatory compliance, and ethical standards.

Moreover, Infosys developers have produced over 25 million lines of code using generative AI, executing more than 2,500 projects focused on generative AI and over 200 dedicated AI initiatives for global clients. Infosys has created four small language models for its internal operations and is actively training tens of thousands of employees to become “AI Builders.”

AI represents the catfish that is motivating Indian IT to evolve from merely completing projects to nurturing cognitive-driven workforces for global enterprises.

Startups: Crafting Full-Stack Supercharged Solutions

For startups in India, AI presents a unique opportunity. Over the past five years, more than 40 tech IPOs have emerged across various sectors such as e-commerce, consumer goods, fintech, and retail, marking only the initial phase of India’s full innovation cycle.

Currently, every software sector, including fintech, health tech, logistics, and consumer digital platforms, is undergoing significant transformation centred around generative systems. The forthcoming Indian unicorns will not simply ‘use AI’; they will be fundamentally built on it.

Founders in the early stages can now streamline development timelines, shorten go-to-market strategies, and scale personalisation through automation. However, they must also achieve a greater level of defensibility, which involves proprietary intelligence frameworks, capital efficiency, and user retention strategies.

The AI-first Indian startup will leverage deep engineering expertise, domain-specific data, and a robust perspective on privacy and governance. India’s venture capital ecosystem is already adjusting to prioritising well-researched founders and capital efficiency over trends and imitation.

Thus, AI functions as the catfish compelling Indian startups to mature from app developers to full-scale innovators.

Deeptech: From Innovative Research to Swift Commercialisation

India’s deep-tech landscape boasts talent but has historically struggled with funding and momentum. Research and commercialisation have often occurred in isolation, with PSU labs focused on outdated procurement processes and the government relying heavily on international vendors.

AI disrupts this conventional approach, serving as a wake-up call to abandon the status quo. To address these challenges, India is streamlining local IP development by connecting research institutions, government procurement processes, capital markets, and corporations through shared open infrastructure and results-driven strategies.

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The Catfish Effect: How AI Is Catapulting Indian Tech Into Its Next Orbit

Funding is the critical element as AI reveals that markets favour those who are quick and ambitious, while they penalise bureaucratic stagnation. Indian deep-tech entrepreneurs and researchers are now urged to create technologies that are competitive on a global scale from the outset.

AI serves as the catalyst demanding a significant increase in the speed of moving from research to revenue, and India is stepping up with tangible actions.

Academia: Transitioning from Teaching to Research

India produces the highest number of engineers globally, yet produces far fewer inventors and entrepreneurs. The current educational framework emphasises teaching over innovative thinking, a model that cannot thrive in the age of AI.

Universities need to function as engines of research, with incentives connected to patents, publications, and partnerships with businesses. Faculty should take on roles as co-founders rather than solely as educators. Government research funding must be directed towards rewarding impactful outcomes instead of mere publication counts.

If the introduction of Tesla encouraged Chinese automotive engineers to shift from imitation to creative solutions, AI can push Indian academia to evolve from instruction to invention.

The National Research Foundation and the National Deep Tech Mission must coordinate to prevent the next wave of scientific leadership from migrating to foreign markets.

Government: Promoting Technological Sovereignty

At this critical juncture, India’s government is addressing the strategic aspects of this transformation and is seeking to enhance technological sovereignty. AI has demonstrated that capabilities developed through years of state-sponsored funding and collaborative research can significantly influence information, geopolitical power, and competitive standings.

The Government of India must create regulations and incentives that facilitate fast local AI development while bolstering technological independence. It is essential to collaborate with citizens rather than compete with them through public sector units that obtain murky contracts.

The government must reform procurement processes and evolve into a supportive first customer. Most crucially, it must radically shift the bureaucratic mindset, demonstrating trust in Indian innovators while eliminating unnecessary hurdles and obstacles to innovation.

India has the potential to leverage AI as a competitive asset, establishing itself as a model of bold innovation amidst the challenges of globalisation.

The Catfish Represents a Trillion-Dollar Opportunity

AI is already reshaping global value landscapes. According to McKinsey, by 2030, it could contribute an additional $13 trillion to the global economy, with India poised to seize $500 billion if it acts decisively. This opportunity is critical. The catfish has entered the arena.

The pressing question is whether India’s technology ecosystem, with its vast scale, cost advantages, and diverse talent pool, can utilise this as a source of momentum.

Transformation frequently begins with discomfort. The catfish does not arrive seeking acceptance; it arrives to instil fear and to thrive. AI has the potential to transition India from profit-driven approaches to innovative originality, from services to holistic systems, from instruction to discovery, and from regulation to strategic direction.

This moment calls for more than just incremental adjustments; it requires a comprehensive structural reformation to redesign, re-skill, and re-envision the future of Indian technology in the era of machine intelligence.

The choice facing India is clear: allow others to shape the narrative, or rise to become the catfish.