ARTICLE 5 OF THE EU AI ACT: IMPACT ON INDIA'S AI ECOSYSTEM

Introduction

The ever-expanding realm of technology reaps not only outstanding benefits to the world at large but also poses a wide range of budding challenges, especially for countries that may not be progressing at the same unprecedented speed. Artificial Intelligence (AI) is one such medium of technology that has the potential to transform the world. It is a machine-based autonomous system that adapts itself to the requirements of its surroundings and produces an output that may be in the form of predictions, content, recommendations or decisions. Such output might have the power to influence the environment which could be both physical or virtual. [1]

AI systems that are currently being operated have revolutionised the world, seeping into every sector of the economy. Undeniably, this technology holds the keys to the future of human beings and the environment. From banking and finance to agriculture, AI has found new stems to branch into and it is only a matter of time before it is operated in every sphere of human life. However, since the development of AI into its many forms is still in its nascent stages, it hasn’t been able to produce precise results consistently. It has also been marked to have led to discriminatory and biased output that has violated the rights of users worldwide. These discriminatory results only expand when used widely without a regulation.

Therefore, against this backdrop, the European Union (EU) became a pioneer in the constitution of comprehensive horizontal legislation to regularise the use and supply of AI. The European Union Artificial Intelligence Act (EU AI Act), passed on 13 March 2024 and came into force on August 1, 2024, making it the world’s first comprehensive AI regulation. The Act imposes substantial penalties for non-compliance, with fines reaching up to €35 million or 7% of global annual turnover, whichever is higher. This extra-territorial application means any AI system offered in the EU market must comply with these rules, regardless of where it is developed. [2]

Consequently, certain obligations and permissions that are required to be taken are also imposed on such AI systems. For instance, ‘unacceptable-risk’ AI systems have been completely prohibited whereas, ‘high-risk’ systems, which might have an adverse influence on people and their fundamental rights, are subjected to many conditions of fulfilment before they are allowed to enter the market. ‘Limited-risk’ systems are allowed to operate provided information regarding them is given and ‘minimal-risk’ AI systems are not subject to such regularisation. [3] This act shall be applicable to both the sectors, public and private, and will be operated even beyond the EU given that the AI system of such providers or developers is available in the EU market. This is to ensure that the health, safety and fundamental rights of citizens of the EU are safeguarded not only against domestic AI systems but also ones that are produced outside of it. [4]

Article 5 of the EU AI Act and its Application

Article 5 of the EU AI Act prohibits certain practices of an AI system. These practices include systems that possess the power to manipulate or deceive the decisions of people such that the behaviour of such a person whose decisions have been so manipulated may be impaired. System practices that have the potential to exploit the vulnerabilities including those of age, disability or social or economic conditions of an individual are likewise prohibited. This Act also forbids the use of any system, that builds facial recognition databases by collecting facial images from CCTV or the internet, analyses a person's emotions while they are at work, or classifies persons based on their biometric information. However, this is also subject to certain exceptions, such as in the event of law enforcement purposes such as locating missing people or in the case of a terrorist attack. [5]

The enforcement of these prohibitions since February 2025 has already impacted several AI applications globally, particularly those involving real-time biometric identification systems and social scoring mechanisms. The ban on cognitive manipulation technologies has also effected advertising and recommendation systems that previously operated without transparency requirements.[6]

Thus, it is evident that the EU wanted an all-encompassing legislation that ensures a safe and secure use of AI in the years to come. This act is anticipated to have a "Brussels Effect," whereby EU rules influence the economies of nations by requiring them to adopt EU standards to access EU markets. A prominent example of it is the impact of the EU’s General Data Protection and Regulation Act (GDPR) which set an example for countries to base their privacy and data protection laws on.[7]

Provisions in India for AI Regularisation

India is already set on a path towards the regularisation of AI. Unlike the EU, India doesn’t have legislation regarding AI. However, the Digital Personal Data Protection Act, 2023 (DPDP) concerns itself with the protection of the rights of citizens by governing the use of digital personal data. It also guarantees the protection of data of artistic juristic persons as well. This is said to incorporate the commercial and technical usage of AI applications. The Indian government does not seek to introduce regularisation legislation for AI as was said by the Union Minister of State for Electronics and Information Technology in 2023.[8] However, an advisory was issued back in March 2024 wherein the Minister clarified that the AI models and systems that are underway in experimentation need the explicit permission of the Union Government prior to entering the market. It was also clarified that platforms offering AI services must label the unreliability of the output that was being generated by such AI systems.[9]

However, certain AI technologies deployed at the present instance can be said to be in direct contravention of Article 5 of the EU AI Act. Facial Recognition Technology (FRT) is a surveillance system in India that is currently being used in many Indian States.[10] This system gathers data points from a person’s face in order to create that person’s digital signature. These signatures are made in order to recognise them with the existing database by comparison between the two.[ 11] However, this system is not said to have perfect accuracy in finding the facial match of a person and, thus, has led to misidentification, which can have adverse effects on a person. Moreover, such a system poses a grave threat to the fundamental right of privacy of an individual. [12] In addition to this, in the absence of any legislation in India, companies that are developing AI models do not require the consent of a user to collect their personal data,[13] thus furthering the threat to their fundamental rights.

The Digital India Act, once rolled out, is said to also focus on some forms of AI.[14] India is currently working towards the AI For All Initiative, which promises to introduce the benefits of AI all over the country and also caution people about its downsides.[15]

Nonetheless, India is moving in the right direction towards establishing a safe and secure AI future and has demonstrated its willingness to work with other nations on this issue. During their first ministerial meeting of the India – EU Trade and Technology Council (TTC) in May 2023, both countries discussed issues regarding trade, technology and security challenges.[16] Moreover, in November 2023 both countries expressed their willingness to work towards AI development during their TTC ministerial meeting.[17] The India-EU TTC has deepened engagement on AI governance, with ongoing discussions focusing on responsible AI development, trade facilitation, and technology standard alignment. This collaboration has become increasingly important as Indian companies seek to ensure compliance with the now-active EU AI Act for market access. Therefore, it is evident that India wishes to secure its relations with the EU and both countries want to work towards the regularisation of AI.

Impact of the EU AI ACT on India

The EU AI Act is a promising legislation for the operationalisation of AI. Technological companies already operating within the EU and those who seek to enter into its market have been introduced to a new set of procedures that must be followed in order to remain in its market. India enjoys a strong trade relationship with the EU being the latter’s second-largest trading partner.[18] The EU AI Act brings forth opportunities for India to further strengthen its trade relations with the EU. Compliance with their AI law will also enhance the reputation of Indian AI models in their market and a special preference may also be given to such Indian products.

With the EU AI Act now fully operational, the compliance imperative has become immediate for Indian companies. The phases implementation means that Indian companies must immediately ensure their systems do not fall under the ‘unacceptable risk’ category. By August 2025, companies developing or deploying general-purpose AI models must comply with transparency and copyright requirements and by August 2027, high-risk AI applications will require comprehensive pre-market assessments and ongoing monitoring.[19]

Furthermore, the AI Act might also act as a benchmark for India to model its own legislation. By having similar provisions as that of the EU AI Act, India will be able to further materialize the cooperation between the two countries for trade and commerce.[20] However, this Act has its own set of challenges. Indian technological companies would have to align their AI policies with those set in the Act and mandatorily comply with its provisions. This will lead to an increase in compliance costs and may involve operational changes within such companies.[21] There would have to be strict adherence to these policies for non-compliance with them could result in penalties, with fines of 35 million euros or 7 percent of global annual turnover.[22]

The enforcement reality since February 2025 has made these compliance costs tangible, with several global companies already adapting their AI systems to meet EU requirements. Indian startups and tech companies are increasingly investing in compliance infrastructure and legal expertise to navigate the complex regulatory landscape.[23]

Conclusion

The future of technical advancement lies in artificial intelligence. More efficient variants of AI will soon be developed, although currently, it is still employed on a relatively pilot basis. There is no denying that legislation pertaining to such a system needs to be introduced. However, it can be challenging to assess what additional requirements and uses of AI can be developed because this area is still in its early phases. As a result, nations continue to hold off the introduction of comprehensive legislation on the subject.

Countries can therefore enact legislation modelled after the strong EU AI Act, as long as these laws are flexible enough to incorporate dynamic advancements in this sector of technology. India can likewise follow suit and enact a law regulating AI while keeping Indian citizens' expectations in mind. The need for collaborative research in Responsible AI was also mentioned in the National Strategy for Artificial Intelligence (2018).[24]

The urgency for India to develop its own comprehensive AI framework has intensified with the Act’s enforcement, particularly given the extraterritorial impact on Indian companies serving European markets. The EU Act also presents an excellent investment opportunity for Indian enterprises to extend their market inside the EU and strengthen the two nations' commercial relationship. However, the compliance burden and the need for harmonisation with global standards require immediate attention from Indian companies and policymakers.

The EU AI Act has the potential to foster the development of the global economy by establishing a network for the sustainable use of AI. As we move ahead, the Act’s influence on global AI development practices, including in India, continues to expand, making it a critical reference point for future AI governance frameworks worldwide.