In the Indian federal structure, the states are a disproportionately critical sector. Unfortunately, they face serious challenges due to insufficient financial resources and limited ability to drive equitable last-mile development. According to Niti Aayog’s fiscal health index 2025, most states are financially stressful. The Reserve Bank of India (RBI) also warned many of them about high deficits. This fiscal pressure has exacerbated populist spending and limited the government’s ability to meet basic development needs.
Artificial intelligence (AI) can act as a powerful equalizer by bridging the gap in resource allocation and outcomes across sectors such as education, agriculture, health care and sustainability.
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this Annual Education Report (ASER) 2024 It shows that less than 50% of Grade 5 students in rural India can read Grade 2 texts and only 30.7% of students can perform basic departments. These gaps stem from factors that usually require a large amount of financial resources to address. AI-enabled solutions can be used to provide personalized learning pathways for students from disadvantaged backgrounds at the lowest cost.
Globally, AI is revolutionizing education. Estonia has integrated it into its national system, while Singapore’s platform offers customized learning modules. China’s AI-based tutoring system provides real-time feedback to students and teachers. Such a model shows how Indian states can use artificial intelligence to overcome limitations in heritage resources and expand quality education, thereby reducing the differences in rural cities.
Agriculture provides another important opportunity for AI-led improvements. Countries such as the United States, Israel and Australia use AI for satellite image analysis, precise farming, crop quality enhancement and yield optimization. Telangana’s Saagu Baagu program and Madhya Pradesh’s Agrihub embody this potential. AI can improve prediction accuracy, reduce waste and increase farmers’ bargaining power. By leveraging artificial intelligence, Indian countries can promote large-scale improvements in agricultural productivity and rural livelihoods.
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India’s micro and medium-sized enterprises (MSMEs) account for 30% of GDP and over 40% of exports, which also benefit from AI adoption. For example, AI-driven predictive analytics can help predict demand cycles, adjust inventory, simplify production and improve export competitiveness, thereby reducing costs and improving turnover time. Nowadays, AI can only be used to enable demand forecasting, dynamic pricing, pre-consignment offloading and real-time decision making (for access only by large companies).
Countries like Germany and South Korea use AI from the MSME sector to increase productivity, reduce waste and increase export potential. MSME India can equally increase profitability and expand access to global markets in textiles, food processing, toys, furniture, jewelry and e-commerce.
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AI can also play a key role in strengthening India’s tense public health system. South Korea, Canada and the UK use AI-based contact tracing to identify infected populations, predict hospitalizations and optimize resource allocation. AI-driven diagnostic tools are improving early disease detection and treatment accuracy.
In addition, AI can improve energy efficiency, promote renewable energy use, improve waste management and enhance climate resilience. Denmark uses AI to optimize wind energy production, and Singapore predicts waste production levels to optimize energy conversion collection.
That is, AI-based governance systems also face challenges: a) data privacy; b) algorithmic bias that may exacerbate inequality; c) lack of trained professionals to manage AI technology; d) digital divides due to infrastructure imbalance.
However, their net gains far outweigh these challenges, which are solvable. We need a strong framework for regulatory data usage, investment in digital literacy programs and infrastructure upgrades. Public-private partnerships can help overcome capacity deficits and drive inclusive AI adoption.
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State governments should develop a roadmap for AI governance to prioritize interstate collaboration with private enterprises. With relatively low initial investment in technology infrastructure, they can quickly expand AI capabilities, allowing public services to deliver better delivery. To promote a sense of competition, the government should establish a national AI adoption index to rank AI implementation and impact. This will inspire the country to accelerate AI integration into governance. Creating AI innovation hubs at the state level can also drive the development of experiments and local solutions.
Embracing AI is not an option, but governance must be carried out. By working with private technology companies to build AI infrastructure and implementation frameworks, Indian states can transform the globally towards technology-oriented development. With open source data sets and models and widely accessible computing infrastructure, state can also be successful through the AI Platform as a Service (AIPAAS). AI can thus change governance, ensuring that every citizen benefits from inclusive growth and access to essential services.
The author is a strategy and public policy professional. His X handle is @prasannakarthik
