SDG 9: Industry, Innovation and Infrastructure | SDG 8: Decent Work and Economic Growth
Institutions: Reserve Bank of India (RBI) | Ministry of Electronics and Information Technology (MeitY)
In her speech, “The transformative power of AI: Europe’s moment to act,” ECB President Christine Lagarde asserted that Artificial Intelligence (AI) is a profound “general purpose technology” that has the potential to reshape economies even faster than previous waves like electricity or computers. Global corporate investment in AI reached a massive USD 252 billion over the past year, yet its aggregate economic impact is currently barely visible in the data.
This phenomenon reflects the historical Productivity Paradox: broad-based economic gains from transformative technologies emerge slowly (electricity took around thirty years) because new power grids, factory redesigns, and worker skills take time to implement. Lagarde estimated that if Europe successfully navigates this transition, annual productivity growth could see a boost of 0.8 to 1.3 percentage points.
However, the speech delivered a sharp warning: Europe risks missing the AI wave and suffering a further loss of competitiveness if it fails to clear existing obstacles, including:
Strategic Dependency and Lock-in: The AI supply chain (chips and data centers) must be diversified to maintain a minimum compute capacity and avoid single points of failure. Europe must leverage the strength of its Single Market to enforce interoperability and open standards in the application layer, preventing monopolistic “lock-in” by a few large tech platforms.
Fragmentation and High Costs: Allowing high energy costs and fragmented regulations to persist prevents capital markets from integrating and channeling the necessary long-term, risk-bearing funding at scale.
Policy Relevance: The ECB’s AI warning is deeply relevant for India because it highlights the emerging risks at the very layer where India’s Digital Public Infrastructure now faces its next strategic challenge: avoiding a new form of “AI lock-in” where critical applications in finance, health or agriculture become dependent on closed foreign models, undermining the openness that made UPI, Aadhaar and ONDC successful. The speech also reinforces India’s push for technological self-reliance by stressing the need for sovereign compute, chips and data-centre capacity—areas India is actively building under the India-AI Mission. Finally, the ECB’s emphasis on overcoming the global “AI productivity paradox” offers lessons for India on accelerating AI diffusion by fixing regulatory fragmentation and expanding long-term, risk-bearing capital, so that AI investment translates quickly into broad-based productivity gains.
What is the Productivity Paradox in the context of AI?→ The Productivity Paradox describes the economic phenomenon where massive investment and widespread adoption of a transformative technology (like AI) do not immediately translate into measurable aggregate productivity gains in the national accounts. This lag occurs because it takes time and long-term investment to fully rebuild the complementary infrastructure, physical capital, and human skills needed to reorganize the economy around the new technology.
Relevant Question for Policy Stakeholders: How can Indian regulators ensure that the country’s AI governance framework and public procurement standards mandate open interoperability to avoid strategic dependency on foreign-owned foundational AI models?
Follow the full news here: The transformative power of AI: Europe’s moment to act