Regulatory Sandboxes for Artificial Intelligence: Techno-Legal Approaches for India, ISAIL-TR-002 Manohar Samal Associate Advocate at Ratan Samal & Associates, Mumbai Poulomi Chatterjee Contributing Researcher, Global Law Assembly; Student at Bennett University
© Indian Society of Artificial Intelligence and Law, 2022
Indian Society of Artificial Intelligence and Law Technical Report Series Year: 2022 Date of Publication: April 14, 2022 ISBN (online): 978-81-956497-0-9 ISBN (paperback): 9798422858262 Authors: Manohar Samal and Poulomi Chatterjee All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher and the authors of the respective manuscripts published as papers. except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law. For permission requests, write to the publisher, addressed "Attention Permissions Coordinator," at the address below. Printed and distributed online by Indian Society of Artificial Intelligence and Law in the Republic of India Regulatory Sandboxes for Artificial Intelligence: Techno-Legal Approaches for India, ISAIL-TR-002, First Edition 2022. Price (Online): 250 INR Price (Paperback). 12 USD (Amazon.com) Indian Society of Artificial Intelligence and Law, 8/12, Patrika Marg, Civil Lines, Prayagraj, Uttar Pradesh, India - 211001 The authorship of the book is retained with the authors of the technical report, while the ownership is retained by the publishing organization. To cite, please follow the format for the list of references as follows 2022. Regulatory Sandboxes for Artificial Intelligence: Techno-Legal Approaches for India, ISAIL-TR-002, Prayagraj: Indian Society of Artificial Intelligence and Law, 2022. You can also cite the book through cite this forme.com (recommended) For Online Correspondence purposes, please mail us at editorial@isail.in. For correspondence purposes, please contact at: 8/12, Patrika Marg, Civil Lines, Prayagraj, Uttar Pradesh, India - 211001
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Regulatory Sandboxes for Artificial Intelligence: Techno-Legal Approaches for India, ISAIL-TR-002
Preface Technology is at the epicentre of development across the globe in view of the fact that the fourth industrial revolution has commenced. The Indian subcontinent has exhibited impressive statistics when it comes to the use of technologies which its population is seemingly familiar with. However, in terms of adoption of newer technologies, especially artificial intelligence, the growth rate has been recorded as comparatively slower than other jurisdictions. There are several contributing reasons to such slow growth and adoption capability and one of them is the lack of a regulated testing environment which permits innovators to conduct real time live testing and obtain feedback for their artificially intelligent products and platforms which are in the stage of development. In other words, the lack of a proper regulatory sandbox framework which is a combination of law and policy initiative has contributed to a slower growth in the development of artificial intelligence technologies in India. It needs to be emphasised at this stage that the role of a regulatory sandbox is immense in the development and introduction of newer technologies in any country. One of the technologies which has shown insurmountable potential in global as well as the Indian context are technologies which are based on and powered by artificial intelligence. Such potential, amongst other things, has been seen because of the wide applications of artificial intelligence in almost all the sectors and industries. Hence, it is pivotal that such potential is explored and directed effectively. Therefore, the present technical report aims at recommending a legal structure for regulatory sandbox frameworks from for encouraging the testing and development of newer artificial intelligence technologies and for this purpose it deals with firstly, introducing the concept of regulatory sandboxes along with explicating its purpose, scope and benefits; secondly, showcasing how regulatory sandbox frameworks work in operation; thirdly, analysing the regulatory sandboxes which have already been implemented in the Indian sphere; fourthly, exploring the possibilities and sectors in which a regulatory sandbox for
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development of artificial intelligence technologies can be implemented; and lastly, providing recommendations on how a legal regulatory sandbox framework for the development of artificial intelligence technologies can be implemented in the Indian scenario. Office of the Research Directorate Global Law Assembly
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Table of Contents 1 Prologue ................................................................................. 7 What is a Regulatory Sandbox? ............................................. 7 Understanding the Functional Aspects of Regulatory Sandbox Frameworks ................................................................ 8 Current Legal Scenario of Regulatory Sandbox Frameworks in India .................................................................. 9 Reserve Bank of India and the Fintech Regulatory Sandbox ........................................................................................................................... 10 Securities and Exchange Board of India and the Innovation Sandbox ........................................................................................................ 12 Insurance Regulatory and Development Authority of India’s Framework for Regulatory Sandbox .............................................. 14 Pension Fund Regulatory and Development Authority Regulatory Sandbox Framework ..................................................... 15 Maharashtra Government FinTech API Sandbox................... 15 International Financial Services Centres Authority Innovation Sandbox Framework ...................................................... 16 Current Legal Structure of Regulatory Sandboxes in India 17
2 Regulatory Sandboxes for Enhancing Artificial Intelligence: Exploring Possibilities from the Indian Angle .........................................................................................18 Artificial Intelligence in the Indian Energy Sector ........ 19 Artificial Intelligence in the Indian Space Sector........... 21 Artificial Intelligence in the Indian Medical Sector ...... 23 Artificial Intelligence in the Indian Automobile Industry ...................................................................................................... 26 Artificial Intelligence in the Automation of Manufacturing in India .......................................................... 28
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Artificial Intelligence in Surveillance, Internal Security and Defence on Land, Sea and Air ...................................... 30
3 Recommendations on Creating a Legal Structure for Regulatory Sandboxes for Artificial Intelligence Technologies in India ..........................................................33 4
Epilogue ...........................................................................37
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1 Prologue
What is a Regulatory Sandbox? A regulatory sandbox is an initiative by a domestic sectoral regulator, backed by a domestic legal or a policy instrument, which aims at permitting innovator companies to conduct live testing of their products that harness the power of novel technologies.1 Such live testing is done after the sectoral regulator, who has proposed the sandbox, implements the necessary safeguards, limitations and operational criteria as per the objectives of the regulatory sandbox,2 which will be discussed in detail in further portions of this technical report. So far, regulatory sandboxes have promoted the entry of new innovators, encouraged existing innovators to test newer technologies, reduced barriers in the development and testing of new technologies, protected innovators who are a part of an implemented sandbox against potential disputes which may arise out of damage caused to consumers during the live testing process, helped innovators in mitigating risks in the technology being used and has helped regulators in planning, formulating and implementing regulatory tools for ensure better regulation of the new technology being tested.3
K.J. Shashidhar, ‘Regulatory Sandboxes: Decoding India’s Attempt to Regulate FinTech Disruption’ (Observer Research Foundation Issue Brief, 20 May 2020) <https://www.orfonline.org/research/regulatorysandboxes-decoding-indias-attempt-to-regulate-fintech-disruption66427/> accessed 19 February 2022. 2 Ibid. 3 Sharmista Appaya and Mahjabeen Haji, ‘Four Years and Counting: What We’ve Learned From Regulatory Sandboxes’ (World Bank Blogs, 18 November 2020) <https://blogs.worldbank.org/psd/four-years1
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The latest available data indicates that up till the end of 2020, fifty seven (57) countries have implemented regulatory sandboxes and most of such sandboxes have been implemented either by regulators in the banking, insurance or the securities sectors for the advancement of financial technology (fintech).4 Regulatory sandbox frameworks across the world have few common characteristics that can even be referred to as the defining characteristics of a regulatory sandbox. These common characteristics include entry and eligibility requirements formulated by sectoral regulators that help in shortlisting and admitting eligible innovators in the framework, insurance requirements to be fulfilled by the innovator companies participating in the framework, consumer protection and redressal mechanism for solving grievances of consumers who have faced damage on account of the live testing being carried under the sandbox framework and the prescription of cohorts and stages of the implementation of the regulatory sandbox framework, all of which are executed on a case- by- case basis depending on the objectives and goals of the regulatory sandbox.
Understanding the Functional Aspects of Regulatory Sandbox Frameworks Before moving forward, it is necessary to understand the various functional aspects of regulatory sandbox frameworks. To start with, it is necessary to discuss the steps involved in executing a regulatory sandbox framework. On an analysis of several regulatory sandbox frameworks, it was discovered that there are four (4) stages which have remained constant in regulatory
and-counting-what-weve-learned-regulatory-sandboxes> accessed 19 February 2022. 4 World Bank Group, ‘Global Experiences from Regulatory Sandboxes’ (2020) 8 Finance, Competitiveness & Innovation Global Practice <https://openknowledge.worldbank.org/bitstream/handle/10986/34 789/Global-Experiences-from-RegulatorySandboxes.pdf?sequence=5> accessed 19 February 2022.
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sandboxes across jurisdictions. These are the application stage, preparation stage, testing stage and the evaluation stage.5 The “application stage” pertains to applications being submitted by innovator companies as per the entry and eligibility requirements and the proposing sectoral regulator receiving applications and evaluating such applications on the basis of the eligibility parameters. The “preparation stage” pertains to the process where the sectoral regulator implements safeguards, restrictions and operational parameters including a forum for innovators to consult the sectoral regulator to obtain clarifications and guidance during the tenure of the regulatory sandbox. The “testing stage” is the heart of the regulatory sandbox where the live testing by innovator companies participating in the framework occurs. This stage involves not only live testing, but also several aspects such as assessment of risks, obtaining feedback and solving consumer grievances. The last stage is the “evaluation stage” where the sectoral regulator assesses if the objective and goal of the regulatory sandbox has been reached or not. Simultaneously, participating innovator companies also evaluate the results of their testing. On the basis of the outcomes, the sectoral regulator determines if the exit can be triggered to permit the product using novel technology to be marketed outside the framework or if the product needs to be discontinued or if there is a requirement of extension of the regulatory sandbox tenure. Current Legal Scenario of Regulatory Sandbox Frameworks in India As pointed out above, fifty seven (57) jurisdictions have implemented regulatory sandbox frameworks across jurisdictions. India is also one of those jurisdictions which has implemented regulatory sandboxes for promoting the development of fintech in the banking, insurance and securities Lea Maria Siering and Till Christopher Otto, ‘Regulatory Sandboxes’ (Lexology, 05 February 2020) <https://www.lexology.com/library/detail.aspx?g=419b7b84-bde04c29-bb63-41df2aa3d0b1> accessed 19 February 2022. 5
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sectors. This portion of the technical report is dedicated at explicating the general layout of the five (5) regulatory sandbox frameworks implemented in India and three (3) more regulatory sandbox framework which is yet to be implemented in India, and in also identifying the challenges being faced because of deficiencies in the implemented regulatory sandbox frameworks. Reserve Bank of India and the Fintech Regulatory Sandbox The Reserve Bank of India’s fintech regulatory sandbox was formulated in multiple cohorts by taking up recommendations from the Inter- Regulatory Working Group and its aim was to promote and develop fintech technologies for retail payments, digital know your customer requirements, money transfer services, financial advisory services, marketplace lending, digital identification services, wealth management services, products which improve financial products, smart contracts, cyber security, data analytics, mobile technology applications, application program interface, artificial intelligence and machine learning applications, applications under blockchain and cross border payments.6 The first cohort of the regulatory sandbox was implemented with the purpose of testing novel technologies for retail payments.7 The second cohort of the regulatory sandbox was implemented with the purpose of testing novel technologies for cross border payments in the banking sector.8 The third cohort of the Reserve Bank of India’s regulatory Reserve Bank of India, ‘Enabling Framework for Regulatory Sandbox’ (Reserve Bank of India, 13 August 2019) <https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?Url Page=&ID=938> accessed 19 February 2022. 7 Reserve Bank of India, ‘Regulatory Sandbox (RS): First Cohort on ‘Retail Payments’- Exit’ (Press Release: Reserve Bank of India, 13 September 2021) <https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid =52217> accessed 21 February 2022. 8 Reserve Bank of India, ‘Regulatory Sandbox (RS): Second Cohort on Cross Border Payments- Test Phase’ (Press Release: Reserve Bank of India, 13 September 2021) <https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid =52218> accessed 21 February 2022. 6
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sandbox was implemented with the purpose of testing novel technologies for micro small and medium enterprises lending.9 The fourth cohort of the Reserve Bank of India’s regulatory sandbox was implemented with the purpose of testing novel technologies for detecting financial frauds in the banking sector.10 On 08th October 2021, the regulatory sandbox framework originally proposed was amended and updated.11 However, few issues have still continued to remain in the updated framework. The first issue with the Reserve Bank of India’s fintech regulatory sandbox is that under paragraph 6.5.2 of the framework, it requires innovator applicants to clearly highlight test scenarios and expected outcomes. This can create the possibilities of innovator companies to underperform since they would naturally choose to highlight an expected outcome which they can anticipate without testing their product where in reality, permitting them to test their product and then assess the expected outcome could be more productive. In fact, such conditions can even hamper the flexibility and experimentation capabilities of innovator companies while testing their products and thus, is not seen in other jurisdictions.12 MoneyControl, ‘RBI Announces Third Cohort Under Regulatory Sandbox With ‘MSME Lending’ as Theme’ (MoneyControl, 13 September 2021) <https://www.moneycontrol.com/news/business/companies/rbiannounces-third-cohort-under-regulatory-sandbox-with-msmelending-as-theme-7461941.html> accessed 21 February 2022. 10 Reserve Bank of India, ‘Regulatory Sandbox- Announcement of Theme for Fourth Cohort and Review of Enabling Framework’ (Press Release, 08 October 2021) <https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR10065D85 2FD07EFA4DD69579F96EF2410147.PDF> accessed 21 February 2022. 11 Reserve Bank of India, ‘Enabling Framework fro Regulatory Sandbox’ (Reserve Bank of India, 08 October 2021) <https://rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage= &ID=1187#C6> accessed 21 February 2022. 12 Chinmayanand Chivukula, ‘Commentary on the RBI’s Regulatory Sandbox for Fintech’ (RGNUL Financial and Mercantile Law Review, 01 December 2020) <https://www.rfmlr.com/post/commentary-on-therbi-s-regulatory-sandbox-for-fintech> accessed 19 February 2022. 9
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The second significant issue is the lack of extant customer protection redressal mechanism.13 Although the regulatory sandbox prescribes few guidelines for customer protection under paragraph 6.8 of the framework, it fails to prescribe a mechanism through which complaints of customers can be entertained. The third major issue is the specific requirement of insurance under paragraph 6.8 of the framework. As per the Reserve Bank of India’s framework, innovators are required to take insurance for consumer compensation. It is noteworthy that instead of incentivising the process, this requirement is capable of increasing the costs of entry for innovators in the sandbox framework. It is also important to understand that under paragraph 6.5 of the framework, the Reserve Bank of India already requires innovators to have a minimum net worth of INR 10 lakhs and the insurance requirements would be in addition to the minimum net worth requirement increasing the overall cost of entry for innovator companies.
Securities and Exchange Board of India and the Innovation Sandbox The Securities and Exchange Board of India (SEBI) introduced its fintech regulatory sandbox framework through circular in June, 2020 and states that all entities registered with the Board under Section 12 of the Securities and Exchange Board of India Act, 1992 are eligible applicants for the regulatory sandbox.14 The sandbox has been introduced with the aim of promoting and developing fintech products for improving day to day securities market operations and functions.15 In order to ensure that Ibid. Securities and Exchange Board of India, ‘Framework for Regulatory Sandbox’ (Circular No. SEBI/HO/MRD-1/CIR/P/2020/95, 05 June 2020) <https://www.sebi.gov.in/legal/circulars/jun2020/framework-for-regulatory-sandbox_46778.html> accessed 19 February 2022. 15 Ibid. 13 14
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sufficient exemptions can be given to innovator companies, the Board has also notified the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020.16 Under the Securities and Exchange Board of India’s regulatory sandbox, several aspects have been covered such as applicability, specific eligibility requirements, specific application and approval process, evaluation criteria, regulatory exemptions, reporting requirements, obligations of participants of the sandbox towards customers, revocation of approval and extension of or exit from the regulatory sandbox.17 Subsequently, SEBI has also amended the framework through Circular with amendments to the division of testing, eligibility criteria, rights of consumers and evaluation criteria.18 However, there are few extant challenges of the framework as well. The first challenge emanating from SEBI’s regulatory sandbox is the entry barrier that only entities who are registered with SEBI can become the principal applicant and that all innovator companies have to forge alliances with SEBI registered entities in order to be able to participate in the regulatory sandbox framework. This could lead to several delays in participating and testing new technology in the regulatory sandbox framework considering the fact that differences amongst the SEBI registered entity and the innovator company may arise. Not only this, but the SEBI registered entities may even impose unregulated restrictions on innovator companies which may undermine the entire process of testing novel technologies effectively, leading to a possibility of the objective of the regulatory sandbox being backfired. The second challenge is that as per the framework, a two- layered governing structure has been created consisting of a Steering Committee and an Operational Team but their
Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations 2020, Regulation 10. 17 Ibid 14. 18 Finsec Law Advisors, ‘SEBI Issues Revised Regulatory Sandbox Policy’ (Financial Regulations Forum, 29 June 2021) <http://finseclawforum.com/2021/sebi-issues-revised-regulatorysandbox-policy/> accessed 21 February 2022. 16
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functions have not been clearly highlighted under the framework.19
Insurance Regulatory and Development Authority of India’s Framework for Regulatory Sandbox The Insurance and Regulatory Development Authority of India’s Regulatory Sandbox was introduced in the year 2019 through the IRDAI (Regulatory Sandbox) Regulations, 2019. The aim of the regulatory sandbox is to develop products relevant to insurance technology which can benefit policy holders, ensure growth of the insurance industry and lead to improved insurance penetration in India through better insurance solicitation and distribution, underwriting, policy servicing and claims servicing.20 The Regulations cover aspects such as categories of applications, rules on conditions on grant of permission, revocation and extension of permission, monitoring and reviewing mechanism, conclusion of the framework and powers of the authorities.21 Due to issues relating to the non- completion of testing caused by restrictions emanating from the coronavirus pandemic, through an amendment of the Regulations, the time period of the framework was extended.22 The main problem with the regulatory sandbox introduced by the IRDAI is that it is in a skeletal form and does not elucidate any aspect in detail. This is evident from several missing aspects Pavan Belmannu and Winy Daigavane, ‘Indian Securities Market’s Regulatory Sandbox: Still Loose and Granular?’ (The Law Blog, 09 May 2020) <https://thelawblog.in/2020/05/09/indian-securities-marketsregulatory-sandbox-still-loose-and-granular/> accessed 19 February 2022. 20 Insurance Regulatory and Development Authority of India (Regulatory Sandbox) Regulations 2019. 21 Ibid. 22 Insurance Regulatory and Development Authority of India, ‘Exposure Draft on IRDAI (Regulatory Sandbox) (Amendment) Regulations, 2021’ (IRDAI, 12 January 2021) <https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.a spx?page=PageNo4337> accessed 21 February 2022. 19
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which are necessary and significant in a regulatory sandbox framework such as the lack of consumer redressal forum, lack of rules on compensation to customers in case of significant loss or damage caused to customers by products being tested under the sandbox framework and lack of a detailed exemption framework, all of which are basic requirements of a regulatory sandbox framework. Pension Fund Regulatory and Development Authority Regulatory Sandbox Framework The Pension Fund Regulatory and Development Authority Regulatory had issued an exposure draft of their proposed regulatory sandbox framework on 23rd April 2019.23 However, the said proposed framework is yet to be implemented and remains at a draft stage. Maharashtra Government FinTech API Sandbox The Maharashtra Government issued the FinTech API Sandbox in the year 2018.24 The sandbox was unveiled as a policy initiative from the State Government under the Mumbai FinTech Hub platform which allows participant innovator companies to connect and experiment with Application Programming
Pension Fund Regulatory and Development Authority, ‘Exposure Draft: Report of the Group to Identify Areas Under NPS Which Could Utilize FinTech through Regulatory Sandbox’ (Pension Fund Regulatory and Development Authority, 23 April 2019) <https://www.pfrda.org.in/writereaddata/links/exposure%20draft% 20for%20comments2887f6e7e-1d57-4b66-8b7f-cf9abe445b42.pdf> accessed 25 February 2022. 24 Press Trust of India, ‘Maharashtra Govt Unveils “Sandbox” to Aid Startups’ (The Asian Age, 02 June 2018) <https://www.asianage.com/business/in-othernews/020618/maharashtra-govt-unveils-sandbox-to-aidstartups.html> accessed 25 February 2022. 23
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Interface (API) service providers in a live online environment.25 However, no data seems to exist as to the effective implementation, success or continuity of the regulatory sandbox framework by the State Government of Maharashtra. International Financial Services Innovation Sandbox Framework
Centres
Authority
The International Financial Services Centres Authority (IFSCA) has issued a regulatory sandbox framework through a Circular on 19th October 2020 called the “Innovation Sandbox”.26 The sandbox framework by IFSCA has also been introduced for the testing and promotion of novel financial technologies. The guidelines cover several aspects such as applicability and eligibility conditions for innovators to participate in the framework, approval process, evaluation criteria, regulatory exemptions, reporting requirements, obligations of participants, extension and exit of the sandbox and revocation of approval.27 Although the IFSCA’s regulatory sandbox framework is at the forefront of frameworks when compared with other regulatory sandboxes in India, certain limitations exist because of the legal nature of the framework itself. The first issue emanates from the limited application and operability of the regulatory sandbox to subject matters which fall under the jurisdiction of the IFSCA. In other words, the regulatory sandbox framework is only capable of stipulating eligibility requirements and providing exemptions which fall under its regulatory supervision, limiting the potential of incentives which can be granted to innovators. Secondly, unlike few other regulatory sandbox frameworks by other Indian regulators, the IFSCA’s framework only prescribes that MahaIT, ‘About Us’ (Mumbai FinTech Hub: FinTech API Sandbox, 2022) <https://mumbaifintech.portal.azure-api.net/AboutUS> accessed 25 February 2022. 26 International Financial Services Centres Authority, ‘Circular F. No. 71/IFSCA/CMD-RS/2020-21’ (IFSCA, 19 October 2020) <http://www.giftgujarat.in/documents/Framework-for-RegulatorySandbox.pdf> accessed 25 February 2022. 27 Ibid. 25
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compensation should be given to a user who faces any form of losses during the operation of the Innovation Sandbox but fails to stipulate a mechanism for user redressal or exercise powers in respect of these matters to create a separate mechanism through which user claims and compensations can be processed appropriately.
Current Legal Structure of Regulatory Sandboxes in India On an analysis of the five implemented and one proposed regulatory sandbox in the aforementioned portions, it is clear that regulatory sandbox frameworks in India have been implemented so far only by sectoral regulators and a State Government in one instance, either through notifications, circulars or regulations that fall under the ambit of delegated legislation or through policy initiative. The fact that such a form of implementation exists for these sandboxes limits their scope since all delegated legislation are restricted to function under the four corners of the principal legislation or statute under which such delegated legislation has been formulated.28 This means that regulators can only prescribe conditions and grant exemptions under their respective regulatory sandbox frameworks for which they are empowered under their respective empowering statutes, limiting the true potential of the respective regulatory sandbox framework issued.29 Therefore, it follows that harmonisation achieved through principal legislation in respect of regulatory sandboxes can prove to be the solution to harnessing the true potential of innovation by regulatory sandboxes. In the present technical report, the aim is to create a legal framework for regulatory sandboxes that foster innovation of artificial intelligence based technologies. M.P. Jain and S.N. Jain, Principles of Administrative Law (17th edn, LexisNexis 2017). 29 Shehnaz Ahmed and Krittika Chavaly, ‘Blueprint of a Fintech Regulatory Sandbox Law: Preparing for the Future of Fintech Innovations’ (Vidhi Centre for Legal Policy, 2020) <https://vidhilegalpolicy.in/wpcontent/uploads/2020/03/20200313_Blueprint-of-a-FintechRegulatory-Sandbox-Law.pdf> accessed 25 February 2022. 28
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2 Regulatory Sandboxes for Enhancing Artificial Intelligence: Exploring Possibilities from the Indian Angle Before moving forward, it is of utmost necessity to explore the possibility of having a regulatory sandbox for artificial intelligence technologies from the Indian angle mainly because of the fact that the regulatory sandbox frameworks implemented and proposed so far have only been for the development of financial technologies (fintech). The idea of a regulatory sandbox for artificial intelligence is not a newfound phenomenon. The European Commission Proposal for Regulation of the European Parliament and of the Council Laying Down Harmonised Rules on Artificial Intelligence (Artificial Intelligence Act) and Amending Certain Union Legislative Acts 202130 has recognised the significance of regulatory sandboxes for artificial intelligence technologies.31 The Norwegian Data Protection Agency has issued a regulatory sandbox for promoting responsible and ethical artificial intelligence intelligences.32 Looking at the fact that several sectors in India have shown immense potential by the adoption of artificial intelligence technologies, this portion of the technical report is aimed at highlighting those sectors by explicating relevant use cases which will help in showcasing the European Commission Proposal for a Regulation of the European Parliament and of the Council Laying Down Harmonised Rules on Artificial Intelligence (Artificial Intelligence Act) and Amending Certain Union Legislative Acts 2021. 31 Jon Truby et. al., ‘A Sandbox Approach to Regulating High- Risk Artificial Intelligence Applications’ (European Journal of Risk Regulation, 12 November 2021) <https://www.cambridge.org/core/journals/european-journal-ofrisk-regulation/article/sandbox-approach-to-regulating-highriskartificial-intelligenceapplications/C350EADFB379465E7F4A95B973A4977D#fn15> accessed 26 February 2022. 32 Birgitte Kofod Olsen, ‘Sandbox for Responsible Artificial Intelligence’ (Dataetisk Taenkehandletank, 14 December 2020) <https://dataethics.eu/sandbox-for-responsible-artificialintelligence/> accessed 26 February 2022. 30
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sectors which are ripe for regulatory sandbox frameworks to be implemented for the promotion of innovation in artificial intelligence technologies. It is clarified at this stage that this work does not claim to cover all the emerging sectors but has aimed to establish a pattern by showing the most prominent emerging sectors in India where artificial intelligence adoption shows immediate and immense potential on the basis of current use cases. Artificial Intelligence in the Indian Energy Sector In order to reach the epitome of a smart power sector in the country, the use of artificial intelligence technologies have been recommended in the emerging markets, leading to clean, cheap, as well as reliable energy, all of which are essential to the development of the energy sector in the country. In this context, artificial intelligence softwares can be depended upon for the processes of automation of routine and structured tasks. Furthermore, since the access of energy is one of the most essential factors for the guaranteed development of the energy sector, a combination of innovative solutions and modern technologies like that of artificial intelligence systems may be recommended in this regard. The energy sector as of today faces a similar variety of challenges, all of which have one common factor- the lack of access to energy. This has led to inefficacy in sufficient power generation, mainly because of the poor transmission and distribution of infrastructure related to the energy sector. In fact, according to the November 2019 report of the International Energy Agency (IEA), approximately 860 million people across the wide globe have limited access to electricity.33 Thus, not only is the need for proper access to energy critical to the energy sector in the country to ensure development, it is also a matter of human health and safety. Along with this, however, affordability of relevant infrastructure as well as the everdegrading climate and environmental issues are also to blame in this context. Particularly, India has been recognized in this IEA, ‘Electricity Access Database’ (IEA, 2018) < https://www.iea.org/sdg/electricity/> accessed 24 February 2022. 33
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sector for aiming to expand the production of renewable energy. As of the reported date in 2022, India has had a hand in installing a capacity of 75GW from a number of renewable energy sources. 34 However, despite such efforts, the expansion of renewable energy remains to be a challenge. Furthermore, in regards to this, it is imperative to understand the working of artificial intelligence in this sector, while also understanding its impact. Artificial intelligence solutions have the honest potential to reduce the waste of energy, lower the cost of energy, and also facilitate and accelerate the use of clean renewable energy sources in power grids throughout the globe.35 For example, in contrast to the above discussed theory, we can refer to the initiative of DeepMind, a subsidiary of Google, who has been applying machine learning techniques to predict power output approximately 26 hours before its actual generation through neural networks trained on weather forecasts and wind turbine data.36 There are several use cases of artificial intelligence in the Indian energy sector. One of them include Tata Power which has been harnessing the power of artificial intelligence (machine learning) to detect pump failures which has led to an energy saving of approximately USD 300,000 for the company.37 The company Climate Connect provides services of price forecasting in the power exchange market and load forecast for energy distribution Aman Y. Thakker, ‘By the Numbers: India’s Progress on its Renewable Energy Target’ (CSIS CogitAsia, 27 February 2019) <https://www.cogitasia.com/by-the-numbers-indias-progress-on-itsrenewable-energy-target/> accessed 24 February 2022. 35 Olivia Gagan, ‘Here's how AI fits into the future of energy’ (World Economic Forum, 25 May 2018) <https://www.weforum.org/agenda/2018/05/how-ai-can-help-meetglobal-energy-demand> accessed 24 February 2022. 36 Sims Witherspoon, Will Fadrhonc, ‘Machine learning can boost the value of wind energy’ (Google Blog, 26 February 2019) <https://blog.google/technology/ai/machine-learning-can-boostvalue-wind-energy/> accessed 25 February 2022. 37 Sarah Hunt, ‘Artificial Intelligence (AI) in Energy’ (Datamation, 25 October 2021) <https://www.datamation.com/artificialintelligence/artificial-intelligence-in-energy/> accessed 25 February 2022. 34
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companies and predictive maintenance services for energy companies which help energy companies in identifying potential breakdowns or issues which helps them in taking timely action.38 Thus, it can be seen that the artificial intelligence is being actively used in the Indian energy sector.
Artificial Intelligence in the Indian Space Sector The Indian space sector is an eight hundred and eighty eight crore sector which continues to rapidly grow.39 The uses of artificial intelligence in the global space sector have been multifarious and the use of this technology in the Indian space sector is also developing quite rapidly. From the global perspective, the use of artificial intelligence in space has been for risk analysis, space missions planning, remote sensing, commercial handling and management of data obtained from space, improvement in the deployment techniques of space vehicles, rockets, satellites and spaceships, improvement in launch and return capabilities, debris tracking, energy savings during space missions and providing training for space missions.40 There have been several use cases of artificial intelligence in the Indian space sector and examples are given in this portion. The Pragyan Rover, which was launched through the Chandrayaan- 2 spacecraft, is a space robotic vehicle that harnesses the power of artificial intelligence to conduct research and exploration activities on the Moon.41 Pragyan Rover can use Moulin, ‘The Advent of Artificial Intelligence in India’s Power Sector’ (Energetica India, 16 March 2018) <https://www.energeticaindia.net/articles/the-advent-of-artificial-intelligence-in-indiaspower-sector> accessed 03 March 2022. 39 Anonna Dutt, ‘India Plans Space Sector Boost in Global Market’ (The Hindustan Times, 07 March 2022) <https://www.hindustantimes.com/india-news/india-to-open-spacesector-for-foreign-investment-target-10-of-global-market-share101631558791899.html> accessed 07 March 2022. 40 Manohar Samal, 2020 Handbook on AI & International Law, (2021) Indian Society of Artificial Intelligence and Law. 41 Leslie D’ Monte, ‘Chandrayaan- 2 Pragyan Shows How AI is Helping Space Exploration’ (LiveMint, 06 September 2019) 38
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artificial intelligence for tracing water, tracing minerals and for taking photographs on the lunar surface.42 Another example is the use of artificial neural networks by the Vikram Sarabhai Space Centre to advance the current technology on re- entry of space vehicles that has enabled to reduce costs and increase safety of re- entry technology being used on spacecrafts and space vehicles.43 The Capacity Building Programme Office of the Indian Space Research Organisation has introduced the Respond Basket Program in which 13 research areas related to artificial intelligence have been undertaken for advancing space technology and to improve activities such as remote sensing, data processing, improving automation in unmanned aerial vehicles and for improving space mission operations.44 Antrix Corporation has entered into a Memorandum of Understanding with a satellite analytics data company called SatSure Analytics to harness the power of artificial intelligence to develop better geospatial technology based services through space activities.45 Similar examples of use cases include the use of artificial intelligence by the National Remote Sensing Centre of the Indian Space Research Organisation for detecting deforestation and limiting damage caused in forests using geospatial and remote sensing technology.46 Therefore, it can easily be inferred that the <https://www.livemint.com/technology/tech-news/chandrayaan-2pragyan-shows-how-ai-is-helping-space-exploration1567764065716.html> accessed 07 March 2022. 42 Ibid. 43 Indian Space Research Organisation, Research Areas in Space, (2018) ISRO <https://www.isro.gov.in/sites/default/files/articlefiles/research-and-academia-interface/supported-areas-ofresearch/research_areas_in_space.pdf> accessed 07 March 2022. 44 Indian Space Research Organisation, Respond Basket, (2018) ISRO <https://www.nitt.edu/home/Respond-Basket.pdf. Accessed 07 March 2022. 45 T.E. Narasimhan, ‘ISRO’s Antrix Signs MoU With SatSure for Promoting Geospatial Technology’ (Business Standard, 05 June 2018) <https://www.business-standard.com/article/companies/isro-santrix-signs-mou-with-satsure-for-promoting-geospatial-technology118060500222_1.html> accessed 07 March 2022. 46 United Nations, ‘New Monitoring System Strengthens Forest Conservation in India’ (United Nations Office for Outer Space Affairs, 24
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growth in use of artificial intelligence in the Indian space sector has been rapid.
Artificial Intelligence in the Indian Medical Sector As of today, healthcare systems across the globe, although developing rapidly, are however struggling with ever-increasing costs, which is making easy access to healthcare systems and cures harder than already was to the general public.47 Thus, in order to aid this situation, artificial intelligence technologies have been recommended in the medical sector which will not only aim to simplify the lives of patients, doctors, and the hospital administrators, but it would simultaneously also assist in speeding up the healthcare process all in all in only a fraction of the prior cost involved in the relevant processes. In this view, many scholars had already predicted the use of artificial intelligence in the healthcare industry due to its significant achievements in the era of information technology, thus landing its positive influence in the medical sector.48 Since artificial intelligence technologies are able to mimic the usual human mind’s cognitive functions through general processes of machine learning and data input, the healthcare industry has already started experiencing a paradigm shift with a larger availability of healthcare and rapid progress of analytics techniques.49 Healthcare services, which are thus supported by artificial intelligence algorithms, will be able to revolutionise the medical treatment processes in the country in a way which has not been tried and tested before. This, however, although aided in providing creative solutions, it also opened the pathway of May 2018) <https://www.un-spider.org/news-andevents/news/new-monitoring-system-strengthens-forestconservation-india> accessed 07 March 2022. 47 Eric J. Topol, ‘High-performance medicine: the convergence of human and artificial intelligence’ (2019) Nature Medicine 25(1). 48 Rehab Rayan, ‘Artificial Intelligence Perspective on Healthcare’ (2019) ICEAT. 49 Fei Jiang, Hui Zhi, et. al., ‘Artificial intelligence in healthcare: past, present and future’ (2017) Stroke and Vascular Neurology 2.
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unprecedented opportunities and potentials never realised before in the healthcare industry. Moreover, technologies powered by artificial intelligence are fuelled by the largely available clinical data and accelerated advancement of analytics systems, all of which is done 102 times faster than a usual human’s cognitive abilities. Not only healthcare professionals, but data scientists, clinical entrepreneurs, policymakers, and others, also believe artificial intelligence technologies to be able to take the medical sector to a new level of productivity. However, one of the notorious sides of artificial intelligence which is worth mentioning is the ‘black-box nature of artificial intelligence algorithms’ which contribute to making opaque and untraceable decision-making processes of the respective mechanisms.50 This black-box nature of the artificial intelligence algorithms has proven to be a challenge especially in the healthcare industry wherein all decision-making processes need to be transparent and accountable for. Although artificial intelligence algorithms cannot be completely depended upon by professionals involved in the healthcare sector due to obvious issues of traceability of decision-making, technology powered by artificial intelligence has already proven its big role in the future since its start of advent in impacting electronic health records, diagnosis, treatment protocol development, patient monitoring and care, robotic surgery, health system management, as well as personalised healthcare assistance.51 The potential of use in artificial intelligence technologies in the Indian medical sector is multifold. The potential of these technologies have been seen for cancer screening, tuberculosis diagnosis, diabetic retinopathy screening, chronic obstructive pulmonary disease diagnosis and management, other similar disease detections and for improving the speed and quality of Anastasiya Kiseleva, ‘AI as a Medical Device: Is It Enough to Ensure Performance Transparency and Accountability in Healthcare?’ (2019) European Pharmaceutical Law Review 1. 51 Desai Mparak & Seema Shah, ‘Artificial Intelligence Technology Role in the Healthcare Industry’ (2020) International Journal of Research in Engineering, Science and Management. 50
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healthcare and medical services in India.52 There have been several examples of artificial intelligence research based projects which are funded by Indian Government initiatives such as the establishment of the Artificial Intelligence Task Force in 2017, NITI Aayog’s National Strategy for Artificial Intelligence and the International Centre for Transformative Artificial Intelligence which focus on research projects of potential uses of artificial intelligence in several Indian sectors including the Indian medical sector.53 In 2019, the Indian Ministry of Health and Family Welfare entered into a Memorandum of Understanding with the Wadhwani Institute for Artificial Intelligence to develop artificial intelligence based solutions for supporting the National Tuberculosis Programme that aims at fighting tuberculosis at an Indian national level.54 The NITI Aayog has partnered with Microsoft and Forus Health to develop an artificial intelligence tool for early detection of diabetic retinopathy.55 Microsoft and Apollo Hospitals have partnered with each other to develop cardiology in India with the use of artificial intelligence. Artificial intelligence has been used by the Indian Government during the pandemic as well. This is evident from the use of artificial intelligence chatbot on the MyGov portal to spread awareness and resolve queries of the general public in respect of the coronavirus pandemic.56 The Defence Institute of Advanced Technology in Pune, a Gurgaon based startup company called Staqu and the Norway India Partnership Initiative have harnessed the power of artificial intelligence to create artificially intelligent coronavirus detection tools. A company called Milagrow HumanTech has developed an artificially intelligent robot called Milagrow iMap 9 and Garuda Aerospace has Nirupam Bajpai and Manisha Wadhwa, ‘Artificial Intelligence and Healthcare in India’ (Centre for Sustainable Development: Earth InstituteColumbia University, January 2020) <Artificial Intelligence and Healthcare in Indiahttps://academiccommons.columbia.edu › download> accessed 07 March 2022. 53 Ibid. 54 Ibid. 55 Ibid. 56 Ibid. 52
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developed an artificially intelligent unmanned aerial vehicle called Corona- Killer 100 which autonomously carry out disinfection related activities.57 Leading multinational tech companies like Google, IBM and Microsoft have partnered with several leading Indian hospital groups such as Fortis, Apollo and Narayana to develop artificial intelligence systems for effective hospital management, disease prediction, disease detection and delivering medical services in remote areas.58 Hospital groups such as Manipal Hospitals have been using the power of artificial intelligence for providing customer services through artificially intelligent chatbots.59 Looking at the several use cases, it can be seen that the application of artificial intelligence in the Indian medical sector continues to grow. Artificial Intelligence in the Indian Automobile Industry The introduction of artificial intelligence in today’s realm has led the technology today towards a significantly different output, especially concerning the automotive industry. The automotive industry now provides a choice to concerned human beings to self-drive automobiles.60 In this regard, on the onset of the global COVID-19 pandemic, despite a significant amount of loss, artificial intelligence infused market has allowed India to create its first SUV whose spine is practically made of an artificial intelligence driven technology.61 Most Indian manufacturers in this regard, in the automobile vehicle industry are aiming to have a visionary approach, MG Motors being one of them. The use of artificially intelligent driven technologies has resulted in a Ibid. Claire Munoz Parry and Dr. Urvashi Aneja, ‘Artificial Intelligence for Healthcare: Insights from India’ (Chatham House, 30 July 2020) <https://www.chathamhouse.org/2020/07/artificial-intelligencehealthcare-insights-india-0/3-ai-healthcare-india-applications> accessed 07 March 2022. 59 Ibid. 60 Gaurav Gupta, ‘Use of AI in the automotive industry’ (TOI, 12 February 2022) <https://timesofindia.indiatimes.com/blogs/voices/use-of-ai-in-theautomotive-industry/> accessed 28 February 2022. 61 Ibid. 57 58
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satisfying value chain which caters to the needs of the manufactures, developers, as well as the end users, by making the overall service a predictive venture which ensures success in 97% of the cases. This is mainly through the amalgamated systems of driver risk assessment and driver assessment technologies imbibed within the artificially intelligent technologies. In this regard, the system of artificial intelligence technologies assists the manufacturers, i.e., the designers and the product developers of automobile vehicle industries to tailor products that are most probably going to satisfy the end-users by carefully analysing and applying the user data it has learnt over its course of time.62 Thus, by relying on the artificially intelligent entities, creative manufacturers like the developers and the designers can add in their flair into their products by adding or subtracting the elements and features that may be present in a consumer’s dream car.63 Interestingly, if such artificially intelligent driven technologies keep assisting manufacturers today, Artificial intelligence powered robots will take over the automobile industry or the factory and need a workforce of other artificial intelligence entities along with constant human supervision to create quick and creative solutions almost always resulting in success. Furthermore, by predicting future maintenance and insurance costs and services, it has aided in Globalisation 5.0 after transforming the automobile industry in the country. Use case examples include Indian automobile giant Tata partnering with Microsoft to harness artificial intelligence, cloud computing and big data analytics for providing advanced navigation and remote vehicular monitoring features.64 The Vinay Sanghi, ‘AI Is Changing The Auto Industry For The Better’ (Business World, 9 January 2022) <https://www.businessworld.in/article/AI-Is-Changing-The-AutoIndustry-For-The-Better-/09-01-2022-417123/> accessed 28 February 2022. 63 Ibid. 64 Sri Krishna, ‘AIM Long Reads: India’s Answer to AI- Powered Vehicles- More Safer, Cleaner, Reliable, and Affordable’ (Analytics India Magazine, 14 February 2022) <https://analyticsindiamag.com/aimlong-reads-indias-answer-to-ai-powered-vehicles-more-safer-cleanerreliable-and-affordable/> accessed 07 March 2022. 62
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company Maruti Suzuki has been using artificial intelligence along with internet of things and robotic process automation to automate and increase efficiency in automobile manufacturing processes.65 Tata Group has partnered with the company AEye to develop an autonomous taxi in India called “RoboTaxi”.66 Hyundai India has launched artificially intelligent DAL-e (Drive you, Assist you, Link with you- experience) that uses artificial intelligence and natural language processing to automate vehicle crash warnings, provide emergency assistance and smoothen driving experience.67 Mahindra & Mahindra has integrated Amazon’s Alexa in its vehicles which use artificial intelligence for navigation, vehicle control, playing music, audiobooks, control doors, windows, check cabin temperature, check fuel level, check tyre pressure, check traffic and find parking.68 The two- wheeler company Revolt has launched its artificially intelligent bike which uses artificial intelligence technologies for providing information on vehicle range, real time battery checking, geofencing and to run real time diagnostics.69 Artificial Intelligence in the Automation of Manufacturing in India Automation of manufacturing is one of the key areas where the deployment of artificial intelligence has been a success and India is no exception to such uses. Companies such as TVS Motor Company Ltd., Asian Paints Ltd., Blue Star Ltd. and JK Tyre & Industries Ltd. have been using artificial intelligence based solutions for undertaking manufacturing.70 Blue Star Ltd. has collaborated with Universal Robots to deploy artificially Ibid. Ibid. 67 Ibid. 68 Ibid. 69 Ibid. 70 BusinessWire, ‘Artificial Intelligence in the Indian Manufacturing Industry, 2020: Trends, Insights, Use Cases, Case Studies’ (BusinessWire, 10 April 2022) <https://www.businesswire.com/news/home/20200428005405/en/ Artificial-Intelligence-in-the-Indian-Manufacturing-Industry-2020Trends-Insights-Use-Cases-Case-Studies--ResearchAndMarkets.com> accessed 11 April 2022. 65 66
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intelligent robots for expansion of copper tube expansion which has significantly resulted in increase in safety at their manufacturing unit.71 A multinational company called GreyOrange has established its research and development centre in India in order to design, manufacture and install artificially intelligent robotic systems at warehouses.72 The company Panasonic has built Technopark in India which harnesses the power of artificial intelligence to undertake production and testing of washing machines and air conditioners.73 The Centre for Product Design and Manufacturing in collaboration with the Indian Institute of Sciences and Boeing are developing India’s first fully automated and artificially intelligent factory which will not only be able to gather and furnish real time data but also undertake planning, monitoring, detection and improvement of manufacturing processes.74 Similarly, Bharat Heavy Electricals Ltd. has invested in initiatives and research to implement and integrate artificial intelligence for manufacturing process monitoring, manufacturing process controls and for maintenance related activities.75 The company Bosch uses artificial intelligence in its manufacturing unit to reduce the time taken to calibrate pumps for tractors.76 Several initiatives have also been taken by the Indian Government to ensure that innovators get a chance to undertake artificial intelligence development activities related to the manufacturing as well as other sectors in India. These include the Digital India initiative, establishment of Centre of Excellence for Data Science & Artificial Intelligence, Digital Agriculture Initiative, Policy on Cloud Hub and Artificial Intelligence and Task Force on Artificial Intelligence.77 Ibid. Geethanjali Jujjavarapu et al., ‘AI and the Manufacturing and Services Industry in India’ (The Centre for Internet & Society, 2022) <https://cis-india.org/internetgovernance/files/AIManufacturingandServices_Report_02.pdf> accessed 11 April 2022. 73 Ibid. 74 Ibid. 75 Ibid. 76 Ibid. 77 Ibid. 71 72
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Artificial Intelligence in Surveillance, Internal Security and Defence on Land, Sea and Air Artificial intelligence is not only being used for external security related purposes such as by the military, navy and the air force, but also for the preservation of internal security and surveillance by the local police in India. The Delhi Police has used artificial intelligence in the past to apprehend and arrest suspects of the Delhi Riots.78 The Kolkata Police has invested in installing CCTV cameras that will use artificial intelligence to spot illegal parking and bikers without helmets.79 Telangana is building an Integrated Police Command Centre which will use artificial intelligence to undertake surveillance in the State.80 The Kerala Police has introduced an initiative to train its police personnel in the State to use artificial intelligence based analytics tools in order to reduce the State’s police workload.81 The Indian Institute of Technology Kanpur has introduced the Artificial Intelligence and Entrepreneurship Program which is developing an artificially intelligent search engine to help police departments in predictive policing and crime mapping.82 The Bengaluru Police have invested in an initiative which will help in the introduction of mannequins enabled by an artificial intelligence software that will notify the police about criminal activity and about traffic violations and the like.83 A startup Gaurav Jain and Raghav Chopra, ‘AI Tech is Increasingly Being Used by Police Worldwide: Here’s Why India Needs to Regulate it’ (Scroll, 01 April 2021) <https://scroll.in/article/989094/ai-tech-isincreasingly-being-used-by-police-worldwide-heres-why-india-needsto-regulate-it> accessed 12 April 2022. 79 Poulomi Chatterjee, ‘How Helpful is the Growing AI- Based Policing in India’ (Analytics India Magazine, 22 March 2022) <https://analyticsindiamag.com/how-helpful-is-the-growing-aibased-policing-in-india/> accessed 12 April 2022. 80 Ibid. 81 Ibid. 82 Ibid. 83 IANS, ‘Bengaluru Police to Introduce Artificial IntelligencePowered Mannequins to Fight Crimes’ (The New Indian Express, 22 78
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company called Staqu is utilising artificial intelligence to assist law enforcement agencies in India to undertake artificially intelligent predictive policing.84 Staqu’s technology has been utilised by Police Departments of several Indian States such as Uttar Pradesh, Rajasthan and Punjab.85 The Indian Navy has taken an initiative to establish a Centre of Excellence and a lab on artificial intelligence and big data analytics and also has around 30 artificial intelligence related projects currently being developed.86 Similarly, even the Indian Air Force has introduced several artificial intelligence based projects that will help it in improving communication networks, data collection and transmission, automate aerial vehicles and airplanes and undertake predictive maintenance.87 The Indian Army in collaboration with the National Security Council Secretariat have jointly established the Quantum and Artificial Intelligence Lab at the Military College of Telecommunication Engineering in Madhya Pradesh to conduct training and promote research in the field of artificial intelligence and quantum computing and its applications in military and defence
February 2020) <https://www.newindianexpress.com/cities/bengaluru/2020/feb/22 /bengaluru-police-to-introduce-artificial-intelligence-poweredmannequins-to-fight-crimes-2107068.html> accessed 12 April 2022. 84 Abhishek Baxi, ‘Law Enforcement Agencies in India are Using Artificial Intelligence to Nab Criminals- Here’s How’ (Forbes, 28 September 2018) <https://www.forbes.com/sites/baxiabhishek/2018/09/28/lawenforcement-agencies-in-india-are-using-artificial-intelligence-to-nabcriminals-heres-how/?sh=59d3d785241d> accessed 12 April 2022. 85 Ibid. 86 The New Indian Express, ‘Indian Navy Ropes in New- Age Tech With 30 Artificial Intelligence Projects in the Works’ (The New Indian Express, 28 January 2022) <https://www.newindianexpress.com/nation/2022/jan/28/indiannavy-ropes-in-new-age-tech-with30-artificial-intelligence-projects-inthe-works-2412338.html> accessed 12 April 2022. 87 Milind Kulshreshtha, ‘AI for IAF to Enhance Air Combat Effectiveness’ (Salute, 15 April 2021) <https://salute.co.in/ai-for-iafto-enhance-air-combat-effectiveness/> accessed 12 April 2022.
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activities.88 The Defense Research and Development Organisation through its Centre for Artificial Intelligence and Robotics has undertaken several projects to integrate robotics with artificial intelligence and has even launched artificially intelligent robots such as RoboSen.89 Therefore, it can be seen that the potential of usage of artificial intelligence is multifarious in surveillance, internal security and defence of land, sea and air in the Indian context.
Press Trust of India, ‘Army Sets Up Quantum Computing Lab, AI Centre at Engineering Institute in Mhow’ (The Indian Express, 31 December 2021) <https://indianexpress.com/article/education/armysets-up-quantum-computing-lab-ai-centre-at-engineering-institute-inmhow-7697802/> accessed 12 April 2022. 89 Satavisa Pati, ‘Use of Artificial Intelligence by Indian Army in the Borders in 2021’ (Analytics Insight, 20 October 2021) <https://www.analyticsinsight.net/use-of-artificial-intelligence-byindian-army-in-the-borders-in-2021/> accessed 12 April 2022. 88
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3 Recommendations on Creating a Legal Structure for Regulatory Sandboxes for Artificial Intelligence Technologies in India Considering the fact that the sectors which have shown immense potential in artificial adoption in India have been discussed and the problems existing in current regulatory sandbox frameworks have also been discussed, it is necessary that certain viable recommendations are provided that attempt to create a legal structure for regulatory sandboxes for artificial intelligence technologies in India. So far, sectoral regulators have introduced regulatory sandboxes that are restricted to the respective sectors which operate completely within the limits of the powers conferred to such sectoral regulators. Thus, in order to address the dilemma directly, the sector- wise approach will have to change to the technology- wise approach since the sector approach is much narrower than the technology- wise approach. This is because the idea and purpose of a regulatory sandbox is to promote innovation of a new technology rather than to promote sectoral development and by keeping a sector- wise approach, the core purpose of a regulatory sandbox is defeated. Emphasising on this, the shift of approach from sectoral to technological would mean that any legal framework proposed for regulatory sandboxes cannot be formulated through delegated legislation, as is being done currently and therefore, principal legislation will have to be framed. A principal legislation on regulatory sandboxes would harmonise various quintessentials of a regulatory sandbox, something which is not seen currently in the Indian scenario since sectoral regulators have continued to implement sandboxes as per the limitations and possibilities conferred to them through their respective enabling legislations. Moving forward, the proposed principal legislation would have to stipulate several provisions to achieve harmonisation amongst the necessities of implementing a regulatory sandbox. A
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provision for definitions will have to mandatorily be kept in order to avoid any ambiguities. This should, ideally be followed by the establishment of a statutory Innovation Office at the Centre and State Innovation Offices along with statutory authorities working in such Innovation Offices, that will assist in the designing, planning, implementation and solving field related problems during the operation of a regulatory sandbox. The qualifications, duties, powers and functions of the statutory Innovation Offices at the Centre and State levels and statutory authorities working in such Innovation Office will have to clearly be outlined. Considering the fact that a regulatory sandbox will never be limited to one form of technology, especially in the case of artificial intelligence since the utilisation of artificial intelligence is often seen with a combination of internet of things, big data analytics, cloud computing, blockchain and robotics, it is necessary that the principal legislation provides few mandatory provisions and confers liberty for specific regulations, rules, guidelines and frameworks to be made for particular forms of technology as and when regulatory sandboxes for such technological combinations are being implemented. This can be achieved by delegated legislation depending on the objective of the regulatory sandbox and the class of innovators being permitted to participate in the regulatory sandbox. Although eligibility and entry requirements can be prescribed by delegated legislation on the basis of the form of technology being proposed to be tested in the regulatory sandbox, it is necessary that the principal legislation itself provides standard provisions for duration of a regulatory sandbox. It is recommended that all regulatory sandboxes should be implemented and operated in cohorts for a standard period of 12 months (extendable for another period of 6 months only in cases of unforeseen exigencies) and the statutory Innovation Offices keep a check and report the progress of each and every cohort in the 12 months period. Standard provisions for exit from the regulatory sandbox will also have to be provided under this principal legislation. Needless to say, since several procedural portions of the regulatory sandbox will be governed by delegated legislation, the power to make rules, regulations, issue notifications and circulars will have to be conferred by the proposed principal legislation.
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Although having a minimum insurance requirement will not deter participation in the regulatory sandboxes, at the same time, it is pivotal to have provisions pertaining to incentives in the proposed principal legislation on regulatory sandboxes. The incentives could involve several aspects such as the relaxation of licensing requirements in case suitable outcomes are achieved in the regulatory sandbox, concessions in the payment of electricity duties (a commodity required in insurmountable quantities while testing new technology) and a concessional rate of Goods and Services Tax for supplies made in relation to the testing of the new technology and permitted only during the period of participation of the innovator company during in the regulatory sandbox. In order to ensure that the incentives are utilised only towards the intended purpose, it is necessary that a Concession Agreement is entered between the statutory Innovation Office and the innovator company testing their product in the regulatory sandbox. Another indispensable set of provisions which the proposed principal legislation will have to deal with, is consumer protection and dispute resolution. In terms of consumer protection, apart from the minimum insurance requirement, a provision mandatorily requiring the innovator companies to take consent from consumers participating in the sandbox framework will have to be provided for along with reporting requirements to be complied by such innovator companies and supervised by the statutory Innovation Offices. Obtaining consent as prescribed by the proposed principal legislation will also help in ensuring that the liabilities of the innovator companies is not unlimited so as to deter them in testing their products effectively. However, there may arise several situations where the damage faced or the transaction entered into between the innovator company and the consumer participating in the sandbox framework are not as simple and therefore, it is necessary for the provisions of the proposed principal legislation to provide for a robust dispute resolution mechanism. It is recommended that a hybrid alternative dispute resolution method of mediation followed by arbitration (commonly referred to as “Med- Arb”) can be used for dispute resolution since the classes of disputes in a regulatory sandbox do not necessarily arise only between the
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innovator company and the consumer facing damage but also arise between two or more innovator companies participating in the regulatory sandbox framework and between the innovator company and the regulatory sandbox implementing authority. For this purpose, a panel of mediators and arbitrators can be formed as per rules and regulations prescribed in the delegated legislation and necessarily, experts in the fields of artificial intelligence and technology law can be appointed in the panel. This will not only help in achieving outcomes of disputes sooner but also help in ensuring that disputes are being handled by experts in the field of technology and artificial intelligence. Lastly, considering the fact that the proposed statutory Innovation Offices will have to work in collaboration with the various Ministries of the Central Government, State Government and also with sectoral regulators, an enabling provision allowing Innovation Offices to actively undertake inter- departmental co-operation can be stipulated as well. In spirit, the recommendations provided above attempt mainly at harmonisation but also aim towards a robust legal framework for enabling technological innovation for taking place. It follows that if statute- governed regulatory sandboxes are implemented in India, the immense unexplored potential of artificial intelligence technologies which only seem to have done well in few sectors can also progress and be applied in other sectors as well leading towards a more quicker yet guided technological innovation in the country.
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4 Epilogue The discussions made in the present technical report are clearly indicative of certain ground realities such as firstly; there are inconsistencies between the various regulatory sandbox frameworks in India because of the inherent limitations of sectoral regulators, secondly; there is immense potential for the legal framework of regulatory sandboxes to evolve in India, thirdly; various sectors in India have shown impressive adoption of artificial intelligence technologies but a significant portion remains untapped, and fourthly; a strong legal framework for regulatory sandboxes can help in fostering innovation and launching new artificial intelligence based products in the Indian market and even possibly increase the amount of sectors in which such technologies are used.
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