India Plans New AI Law with Risk-Based Regulation Framework

India is preparing a dedicated law to regulate artificial intelligence (AI), with the proposed legislation expected to classify AI systems based on the level of risk they pose. The move marks a significant shift in the country's approach to AI governance as policymakers seek to balance innovation with safety, accountability, and consumer protection.

According to a government official, the proposed law will adopt a risk-based regulatory framework, imposing minimal compliance requirements on low-risk AI applications while introducing stricter obligations for AI systems deployed in critical sectors such as banking, healthcare, finance, and national infrastructure.

Risk-Based Regulation at the Core

The proposed legislation is expected to classify AI systems according to their potential impact on individuals, businesses, and society.

Under the proposed framework, low-risk AI applications such as:

  • Chatbots
  • Productivity tools
  • Recommendation engines
  • General-purpose AI assistants

would likely face limited regulatory obligations, allowing innovation to continue with minimal compliance burdens.

However, AI systems used in high-risk sectors—including banking, financial services, healthcare, insurance, and critical infrastructure—could be subject to significantly stronger oversight.

Government May Mandate AI Safety Testing

One of the key features of the proposed law would empower the Central Government to prescribe mandatory safety testing requirements for artificial intelligence models and systems.

According to the official, the legislation may authorize the government to define testing standards, establish safety parameters, and require compliance before certain AI systems are deployed.

The law may also enable authorities to introduce sector-specific regulations over time as AI technologies continue to evolve.

Framework for Sectoral AI Regulations

Rather than replacing existing regulatory bodies, the proposed legislation is expected to function as an overarching legal framework supporting sector-specific AI regulations.

Regulators that could issue AI-related rules under the new framework include:

  • Reserve Bank of India (RBI)
  • Securities and Exchange Board of India (SEBI)
  • Insurance Regulatory and Development Authority of India (IRDAI)

This would allow different sectors to establish AI governance standards tailored to their specific operational and risk requirements while remaining within a common national legal framework.

Building on India's AI Governance Guidelines

The proposed law is expected to incorporate several recommendations contained in the National AI Governance Guidelines released by the Central Government in November last year.

Among the key recommendations were:

  • Amending the Information Technology Act to address artificial intelligence.
  • Classifying AI systems based on risk.
  • Developing an India-specific AI risk assessment framework.
  • Creating a national database for AI-related security incidents.

According to government officials, these recommendations may ultimately find legislative backing through a dedicated AI law rather than amendments scattered across existing legislation.

Clarifying the Legal Status of AI Systems

The government has also expressed concern that the current definition of an "intermediary" under the Information Technology Act is too broad to effectively regulate modern AI systems.

The existing definition covers a wide range of entities, including:

  • Telecommunication service providers
  • Search engines
  • Internet platforms
  • Cyber cafés

However, officials believe that today's generative AI systems—which can autonomously generate text, images, code, audio, and other content—require their own legal classification.

The proposed legislation may therefore establish separate obligations and liability standards for AI developers, providers, and deployers.

Separate AI Law to Address Emerging Threats

The push for dedicated AI legislation gained further momentum after Electronics and Information Technology Secretary S. Krishnan recently confirmed that the government is actively considering a standalone AI law.

According to Krishnan, existing legal provisions have been reasonably effective in addressing early concerns surrounding deepfakes and certain forms of online harm.

However, the rapid evolution of artificial intelligence has introduced new cybersecurity, safety, and governance challenges that may require legislation specifically designed for AI technologies.

Why the Proposed AI Law Matters

If enacted, the proposed legislation would represent India's first comprehensive legal framework dedicated exclusively to artificial intelligence.

A risk-based regulatory model would allow regulators to encourage innovation in lower-risk AI applications while ensuring stronger oversight for technologies capable of affecting financial systems, healthcare, public safety, and critical infrastructure.

As countries around the world introduce AI-specific regulations, India's proposed law could play a crucial role in defining the country's approach to responsible AI development, regulatory certainty, and long-term technological growth.

TT
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