How AI Regulations In India Is Changing: Opportunities and Risks

Artificial Intelligence (AI) is playing a pivotal role in transforming the data privacy governance space of the country, acting as both a powerful tool for data protection, along with a new source of complex risks. The core challenge lies in balancing the data-driven approach of AI along with the need to not just protect the sensitive personal information of the user but also adhere to the evolving global privacy regulations.

Even India’s Digital Personal Data Protection (DPDP) rules 2025 have come up with a structured legal framework that is trying to balance the opportunities with AI with very strong data privacy principles. The law also discusses its significant impact on the development and deployment of AI regulations in India.

In this article, we will discuss how AI data privacy is changing, what opportunities lie before it, as well as the risks it comes with.

Opportunities for AI Data Privacy Under DPDP

The DPDP framework comes with guardrails that foster transparency, responsible innovation, and trust, which acts as a competitive advantage for the AI companies. Some major opportunities that lie with the AI companies with respect to DPDP are:

1. Clarity on the usage of data: The DPDP rules mandate the organisations to take clear and specific consent from the user to process their data. AI companies now should act with utmost transparency and clearly explain what data is being collected and why. This, in turn, helps them companies build more user trust.

Also Read : The DPDP Compliance Checklist (2025): Step-by-Step Guide for Indian Businesses

2. Research Exemptions: Certain DPDP obligations largely exempt the AI companies from processing personal user data for statistical, research, and archiving purposes, provided the prescribed standards are adhered to and do not lead to decisions specific to data principals. This provides a pathway for AI innovations for academic and non-commercial purposes.

3. Access to Public Data: The rule provides an exemption for the personal data that is already available publicly, allowing AI firms flexibility in obtaining the training data from public sources without explicit consent.

4. Global Alignment: The DPDP rules are letting the AI deep tech companies meet the international compliance requirements, as it is in alignment with global privacy standards like GDPR. This enables these companies to scale with confidence in the international markets.

5. Enhanced Security Standards: The overall data security posture of organisations has been enhanced due to the requirement for reasonable security safeguards. This automatically makes the AI data privacy and the underlying data more secure against data breaches.

Also Read : Principles of Data Privacy and Protection Explained| Core Principles of DPDP

Risk and Challenges for AI Data Privacy Under DPDP

While the DPDP framework fosters innovation, it also poses significant challenges for AI development, and it's primarily due to the reliance of AI tech on diverse and large datasets with opaque operations. Here are a few challenges and Risks that AI companies can face with respect to data privacy:

1. Consent Management Complexity: The generative AI models usually process vast amounts of data in complex ways, which makes it challenging to link every data point to its initial consent and the specified purpose. The new system would require management and logging of consent, which might add an operational burden.

Also Read: Top 5 Consent Management Platforms in India 2025

2. Algorithmic Transparency and Bias: The DPDP rules do not talk about the “explainability” for AI decisions in their mandate, and neither do they provide individuals with the right to contest automated decisions, which might be a gap as compared to some global privacy regulations like GDPR. This raises concerns regarding the accountability and algorithmic bias in AI-led decision-making processes.

Also Read : DPDP vs GDPR: A Complete Guide for Indian Businesses

3. Right to Erasure : The DPDP rules that the data principals have the right to update, correct, and even erase their personal data. For AI models, the ones that are already trained on existing data, removing specific data is a significant technical challenge that is not easily implementable with the current technology.
4. Significant Data Fiduciary (SDF) Obligations: The large AI platforms that process sensitive data are classified as SDFs. These SDFs will face stricter obligations, such as conducting annual Data Protection Impact Assessments (DPIAs), appointment of a Data Protection Officer (DPO), as well as performing data audits independently. These requirements not only increase the cost but also the complexity.
5. Cross-Border Data Transfer : While the DPDP rules allow cross-border data transfer, it is also subject to the government conditions, which might include restrictions on transfer to certain countries. This can lead to a disruption in the functioning of the global AI companies relying on seamless international data flows.

Conclusion

India’s DPDP framework provides the required legal foundation for data protection in the era of AI and compliance. The success lies in organisations implementing these data governance policies proactively, along with the Data Protection Board (DPB) enforcing these rules consistently to balance technological advancement and the citizens' rights.

Privy by IDfy,India’s first full-stack data privacy and governance platform, helps you become DPDP compliant in days. It is one of the top contributors to the implementation of DPDP rules across enterprises in India.

Get in touch with us at shivani@idfy.com so that we can help you streamline your DPDP compliance journey.