The recent decision by the U.S. government to scrap the Biden-era "AI Diffusion Rule" has been welcomed as a significant boost for Indian cloud and data companies. This policy reversal promises to ease previous restrictions on the export of advanced artificial intelligence (AI) chips, potentially unlocking new opportunities for India's rapidly growing AI sector.
The AI Diffusion Rule, introduced by the Biden administration, aimed to limit China's access to high-end AI technology. It did so by categorizing countries into different tiers, imposing limits on the number of chips that could be imported by nations in the second and third tiers. While the rule was intended to prevent indirect access to advanced AI chips by countries deemed a security risk, it drew criticism for being overly restrictive and diplomatically insensitive, placing key US partners like India under restrictive categories. Tech companies like Microsoft and Oracle had voiced concerns that the rule would limit U.S. firms' opportunities abroad without significantly hampering China.
The rescission of the AI Diffusion Rule is expected to benefit countries like India, which are actively developing their AI infrastructure. India has been seeking improved access to AI chips produced by companies like Nvidia. The availability of cutting-edge AI hardware is considered critical for India's advancements in the AI space, both at the governmental and private sector levels. This policy change suggests greater potential for future cooperation in exporting more American AI chips to developing countries like India.
Industry leaders in India had previously expressed concerns that the restrictions would hinder AI development by reducing access to GPUs and increasing procurement costs. Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA), noted that large-scale AI data centers requiring numerous GPUs might face delays or scaling down, potentially placing global companies at a competitive advantage over Indian enterprises.
The Trump administration's decision to scrap the rule aligns with a broader strategy to strengthen ties with allied countries and ensure that US technology does not inadvertently end up in the hands of rivals. Jeffrey Kessler, U.S. Under Secretary of Commerce for Industry and Security, stated that the new administration aims to pursue a bold, inclusive strategy to share American AI technology with trusted foreign countries while keeping the technology out of the hands of adversaries.
While the scrapping of the AI Diffusion Rule is largely seen as positive, the U.S. Commerce Department has also announced additional steps to strengthen export controls on semiconductors worldwide. This includes issuing guidance alerting the industry to the risks of using PRC advanced computing ICs, including specific Huawei Ascend chips. It also involves issuing guidance warning the public about the potential consequences of allowing U.S. AI chips to be used for training and inference of Chinese AI models and providing guidance to U.S. companies on protecting supply chains against diversion tactics. While bans on Huawei Ascend chips are unlikely to significantly impact India, the new tracking mandates for US chips may present enforcement challenges.
Industry leaders emphasize the need for India to strive for AI self-reliance amid rising compute demand and data sovereignty concerns. Despite the potential benefits of the U.S. policy change, the long-term scaling of Indian conglomerates could still face challenges. Some experts suggest that the Trump administration might adopt a country-by-country approach to negotiating new chip export rules.
