India needs to build its own foundational artificial intelligence (AI) model, or it may risk falling permanently behind the US and China with growing geopolitical restrictions on frontier AI models, according to a report by Bernstein.

The report argues that recent US restrictions on access to some of the latest AI models mark a turning point in the global AI race, signalling that cutting-edge large language models (LLMs) are increasingly being treated as strategic assets rather than commercially available software. If India continues to depend on foreign AI models while focusing only on application development, it risks ceding control over a critical layer of future technology, Bernstein said.

“India can’t build its AI future on borrowed models,” the brokerage said, adding that the country’s current strategy of building applications on top of foreign LLMs and investing in data centre infrastructure leaves it exposed to geopolitical risks.

Bernstein likened AI models to military assets, saying “AI is the next fighter jet”, as governments increasingly restrict access to advanced technologies ranging from semiconductor equipment and GPUs to frontier AI models. Foundational models, it argued, are no longer simply software products but strategic resources that countries may increasingly guard for national security and economic advantage.

The brokerage said the latest restrictions on access to Anthropic’s frontier models for non-US citizens demonstrate that access to advanced AI cannot be taken for granted. It warned that India could eventually find itself locked out of the most advanced AI systems or forced to operate using models that are one or two generations behind those available in the US and China.

Such a scenario could leave Indian technology companies at a structural disadvantage, Bernstein said. Even companies with deep engineering talent could struggle to compete if they are building products using older AI models while startups elsewhere have access to cutting-edge systems.

India’s missing ‘DeepSeek’ moment

According to Bernstein, India has yet to produce its own “DeepSeek moment” because its technology ecosystem has historically been driven by IT services rather than consumer internet platforms that generate large proprietary datasets needed to train frontier AI models.

The brokerage said India’s services-led technology model rewarded companies that customised and maintained software built by global firms, leaving little incentive to develop foundational AI capabilities. As a result, many policymakers and industry leaders have argued that India should focus on AI applications instead of building its own LLMs—a view Bernstein believes reflects the country’s historical trajectory rather than a deliberate long-term strategy.

AI sovereignty becoming a strategic necessity

Bernstein said AI is following the same path as technologies such as nuclear energy, defence systems and semiconductors, where access has historically been shaped by geopolitics rather than free markets.

It pointed to successive US export restrictions on advanced semiconductor equipment, GPUs and AI technologies, arguing that countries are increasingly treating AI as sovereign infrastructure. If similar controls continue to expand, India could find itself dependent on foreign governments for the intelligence layer powering enterprise software, defence, healthcare and financial systems.

Rather than relying solely on overseas AI models, India should build its own foundational capabilities while also developing specialised domain-specific LLMs using proprietary datasets in sectors such as healthcare, industrials and defence, Bernstein said.

Rethinking India’s AI policy

The brokerage also questioned whether India’s current AI strategy is sufficiently focused. While the India AI Mission spans compute infrastructure, research, applications, hardware and foundational models, Bernstein argued that spreading limited resources across multiple priorities risks preventing the country from building meaningful leadership in any one area.

It suggested policymakers could either incentivise the development of domestic LLMs or require global AI companies to build India-based AI stacks insulated from geopolitical restrictions. Both approaches have trade-offs, Bernstein said, but they reflect the growing need to balance access to global AI with technological autonomy.

Ultimately, Bernstein argued that developing an indigenous foundational AI model is no longer optional.

“India’s own ‘DeepSeek’ has stopped being a luxury,” the brokerage said, adding that it has become a strategic necessity if the country wants to retain control over the next generation of technology and remain globally competitive.