US drops AI chip export rule, easing pressure on Indian cloud firms

The US has scrapped a proposed AI export control rule, offering relief to Indian cloud firms that were worried about restrictions on chip imports. Although the ban on Huawei’s Ascend chips has minimal impact in India, the new requirement to track US chip shipments globally poses enforcement challenges. Industry leaders are now emphasizing the urgency of building India’s AI self-reliance, citing growing demand for computing power and concerns over data sovereignty.

In a major relief for Indian cloud service providers and data centre operators, the United States has rescinded its planned Artificial Intelligence (AI) Diffusion Rule, which was set to take effect on May 15. The original rule, introduced by the Biden administration, would have significantly restricted the export of high-end AI chips such as Nvidia’s B200 to countries like India, with a proposed cap of 50,000 GPUs annually.

The reversal was announced by the US Commerce Department’s Bureau of Industry and Security (BIS), which simultaneously issued new guidelines aimed at tightening export control measures on AI chips. One key provision was a warning that global use of Huawei’s Ascend AI chips would be treated as a violation of US export controls. While this is unlikely to affect Indian firms—since Huawei chips are not prevalent in India—the broader implications of the US decision to monitor the global movement of its AI chips have raised eyebrows.

Under the new framework, US chipmakers must implement mechanisms to track each shipment, irrespective of the destination. This requirement has led to concerns within the Indian industry over the practicality and time required to implement a robust tracking system. Deepika Giri, Assistant Vice President for Big Data Analytics and AI Research at IDC Asia Pacific, noted that while disabling chips for unlicensed users is an extreme solution, implementing software-like key-based licensing could be a more feasible alternative.

The now-revoked AI Diffusion Rule would have severely limited India’s access to cutting-edge AI chips, restricting the import of powerful processors like Nvidia’s B200 to approximately 20,000 units. The rule posed a threat to India’s growing AI infrastructure, which is being driven by booming demand across sectors such as banking, agritech, and government services.

Piyush Somani, CEO of ESDS Software Solution and President of the Cloud Computing Innovation Council of India, emphasized the urgency of addressing India’s rapidly expanding AI compute needs. “In the last 18 months, India’s AI demand has grown over five times. We need immediate access to advanced chips to keep up,” he stated. He also underscored the strategic importance of data sovereignty, warning against over-reliance on foreign cloud platforms that risk unintentional data outflow.

Meanwhile, Prateek Jhawar of Avendus Capital noted that although Huawei’s AI chips are not currently used in India, their potential to serve as low-cost alternatives to Nvidia products is what triggered the US crackdown. However, he cautioned that the practicality of enforcing global tracking for AI chips remains to be seen, pending formal US guidelines.

The US decision marks a balancing act—supporting innovation and security without stifling global collaboration with trusted allies like India.