The Ministry of Electronics & IT published the revised framework for AI late on Tuesday, replacing guidelines that had been in force since 2021. The notification runs to 46 pages and touches eligibility thresholds, certification, the incentive claim cycle and the penalty schedule, and it takes effect 60 days after gazette publication.

Legal advisers recommend that firms treat the first 60 days as a mapping exercise: classify every product line against the new definition, identify supplier gaps, and file for provisional certification early. Those who wait for the final operating manual, they warn, may find the first incentive window closing without them.

What the notification changes

The fiscal arithmetic is modest relative to the sector's size. AI contributed an estimated $7.2 billion to exports last year, and the ministry projects that full uptake of the scheme could lift that figure by 28.8% annually by 2030. Independent economists consider the target ambitious but not unreasonable if the certification bottleneck is resolved.

State governments are expected to follow with complementary measures. Three states have already signalled land and power-tariff concessions for AI clusters that meet the new thresholds, creating what one official called a competition for compliant capacity. The ministry will convene a coordination meeting next month to avoid duplicative incentives.

The incentive pool is sized at $7.2 billion over five years, front-loaded so that roughly 40 percent is claimable in the first two. Applications will move to a single online window, and the ministry has committed to a 30-day decision clock, down from an average of 74 days under the previous process.

“Predictability matters more than the headline rate. Boards will commit capital when the rules are fixed for five years.”

Who gains and who is exposed

Larsen & Toubro, one of the larger beneficiaries of the previous scheme, said it expects to qualify under the new rules without changes to its sourcing but flagged a one-time cost of about $90 million to re-certify two legacy lines. The company noted that the longer-term benefit lies in predictability, because incentive rates are now fixed through 2030.

At the centre of the change is a tighter definition of domestic value addition. Units will now need to demonstrate at least 4% local content on a product-line basis rather than a plant-wide average, a shift that officials say closes a loophole but that compliance teams describe as the single most expensive part of the rule.

The compliance clock

Industry reaction has been measured. A trade body representing 2,198 member units welcomed the faster approvals but warned that small manufacturers lack the testing capacity to meet the new certification norms before Q3 FY27. It has asked for a 90-day grace period and a shared-laboratory scheme to be notified alongside the rule.

Analysts note that the penalty structure is also sharper. Misdeclaration of local content can now trigger clawback of up to three years of incentives with interest, and repeat offenders face debarment from future schemes. Several consultancies reported a surge in inbound requests for pre-audit support within hours of the notification.

What to watch next

The next milestone is the release of the operating manual and the online portal, which the ministry says will arrive within six weeks. Until then, firms are advised to rely on the frequently-asked-questions document that accompanied the notification, which already answers 38 of the questions raised during stakeholder consultation.