Why AI software sector will be the primary driver of tech growth

In 2024, the scope of disruption artificial intelligence (AI) is going to cause in businesses worldwide is unparalleled. AI is expected to have the same effect across sectors, industries and individuals that the internet had in the 1990s when it revolutionised the manner in which information was shared and accessed.

Zooming in on India, the country is strategically poised to leverage its robust support systems, which include an unparalleled startup ecosystem and a vast reservoir of talent, to ascend the AI maturity ladder. According to a recent IDC study in collaboration with Intel, India currently stands as an AI Practitioner (stage 2), reflecting its active but still developing implementation of AI across various sectors.

Recognising the potential, Santhosh Viswanathan, vice president and managing director, India Region, Intel, says, “The extent to which India has changed in the last few years is phenomenal. With a strong digital foundation at that population scale, everything else gets built on top of it.”

As the recognition of AI's advantages grows among Indian businesses, enterprise spending on AI is expected to surge, marking the highest growth rate among surveyed markets. The AI software sector is set to be the primary driver of this growth, projected to reach $2.6 billion by 2027, while AI infrastructure spending is anticipated to hit $733 million within the same timeframe.

AI spending in India is poised for the fastest growth among eight key markets, including Australia, Indonesia, Japan, Korea, Malaysia, Singapore, and Taiwan. With a compound annual growth rate (CAGR) of 31.5% from 2023, AI spending in India is expected to reach $5.1 billion by 2027. Hosting 20% of the world's data and AI talent, India holds a strong strategic position as a global AI leader and could potentially surpass even the US.

However, while 80% of surveyed large organisations use AI/ML to improve business outcomes, only 6% consider their AI implementations crucial to their competitive advantage. “This substantial gap underscores the challenges in AI deployment and underscores the critical role of change management,” says the report.

Viswanathan opines that while access to digitisation has happened across scale in India but materially it’s still small. For instance, although AI spending is expected to reach $5 billion, it’s still 1% of the approximate $500 billion expected to be spent overall.

“20% of the world’s data is being generated in India but there is only 2-3% of server infrastructure in the country. It’s a small fraction,” he says while adding that how India is building its roads, it needs to build additional [digital] infrastructure.

Despite the great interest and surge in AI usage, IDC’s study of eight Asia/Pacific economies (Australia, India, Indonesia, Japan, Korea, Malaysia, Singapore, and Taiwan) shows that they are in the mid-stages of overall AI maturity.

AI spending for Asia/Pacific is forecast to grow at a compound annual growth rate (CAGR) of 28.9% from 2022 to reach $90.7 billion by 2027.

While Intel is driving the promise of AI domestically, the MD notes that AI is a foundational technology change and the challenge with businesses adopting AI is that everybody jumped on use-cases first and then tried to figure out how to adopt it.

“We are looking at use-cases as a reflection of utility and value, whereas the key aspect is to build that foundation first so use-cases can evolve and innovation can thrive,” he adds.

Notably, the report highlights that the BFSI (Banking, Financial Services, and Insurance) and manufacturing sectors are emerging as the leading spenders in India. The manufacturing industry, in particular, is expected to play a critical role in driving the country's economic growth, especially within sectors such as electronics and consumer goods.