As Anthropic suspends access to new models, India debates its AI future

Anthropic’s sudden move to suspend access to its latest AI models following a directive from the US government has raised new questions in the global tech industry. In India, the decision has revived a long-running debate over whether one of the world’s largest AI markets can afford to rely on technologies built and operated elsewhere.

The announcement came late Friday, when Anthropic said it had received the US government directive requiring it to suspend access to the recently launched Fable 5 and Mythos 5 models for all foreigners, including its own foreign workers. The move came shortly after the company announced a partnership with Indian IT services giant Tata Consultancy Services to expand the adoption of enterprise AI in India, underscoring how closely the country’s AI ambitions have become tied to technologies developed and managed in the US.

While the broader implications remain unclear, some reports say the initial safety concerns were first reported to the government by Amazon CEO Andy Jassy. And the information said The White House is unlikely to extend similar restrictions to other AI companies and privately blames Anthropic’s handling of alleged jailbreak vulnerabilities. Anthropic has disputed the government’s characterization and argued that the action should not have been taken.

Either way, the development has sparked debate among Indian founders, investors, and policy experts over whether the country should accelerate efforts to build domestic AI capabilities, deepen investments in open-source alternatives, or continue to rely on a handful of U.S. frontier model providers. For some, the episode is a wake-up call about technology dependency. For others, it is a reminder that access to increasingly critical AI systems may be determined by geopolitical decisions beyond India’s control.

India has become one of the most important markets for groundbreaking AI companies. Anthropic and OpenAI have both described the South Asian nation as their second largest market after the US, reflecting its growing importance in the global AI race. The companies have already set up offices in India in recent months and expanded local recruitment activities, partnerships and venture initiatives, relying on India’s vast base of developers, startups and companies to accelerate the adoption of their latest technologies.

For many in India’s tech sector, Anthropic’s announcement on Friday was about more than just one AI company. It reopened questions about the country’s long-term AI strategy and whether India could afford to remain dependent on a small number of foreign AI providers.

“It changes things completely,” said Aakrit Vaish, founder of the Indian AI venture platform Activatereferring to Anthropic’s decision. “I think this fundamentally changes the way we should all think about sovereign AI in India.”

Vaish told TechCrunch that he woke up Saturday morning “shocked and confused” by the announcement and said it strengthened the case for developing domestic AI capabilities. He expects startups will increasingly focus on open source models and plans to encourage companies in his portfolio to reduce their dependence on a small number of pioneering AI providers.

For some founders, the bigger concern was what restrictions on cross-border AI access might mean for competitiveness. Vijay Rayapati, co-founder and CEO of Atomic worktold TechCrunch that the episode highlighted the risks faced by startups whose teams span multiple countries as access to advanced AI systems becomes increasingly subject to geopolitical restrictions.

Atomicwork has approximately 25 employees in the US, although much of the product development team is based in Bengaluru, India.

“If your AI team is not made up entirely of U.S. citizens, you are at a competitive disadvantage,” Rayapati said, arguing that unequal access to groundbreaking AI models could give some companies a significant advantage over their rivals.

The concern comes as parts of India’s tech sector are already grappling with questions about how AI could reshape the economics of global talent. This week, US real estate technology company Opendoor closed its Indian office less than two years after expanding in the country, with CEO Kaz Nejatian citing a push to bring operations work closer to clients in the US and a shift to smaller AI-native teams.

While Opendoor did not specify how much of the decision was driven by AI-related efficiencies, the move contributed to a broader debate about how advances in AI could impact the future of global tech work and what that could mean for India’s position as a hub for tech talent.

Beyond anthropic

Beyond startups and AI builders, the anthropic episode also sparked a broader debate among India’s tech leaders over dependence on foreign AI infrastructure.

Sridhar Vembu, founder of Indian SaaS company Zoho, said the move showed that “technology is the ultimate weapon” and urged Indian organizations to increasingly embrace smaller and open-source models.

“What can our government do now? Ensure that organizations in India embrace smaller models, both Indian and Chinese open source models,” says Vembu wrote on X.

Investor and former Infosys executive Mohandas Pai responded to Vembu on

“We are far behind and need a national mission to get started quickly,” Pai wrote, urging the government to set up a ₹500 billion (about $5 billion) annual fund for AI and deep tech, in addition to a ₹2 trillion (about $21 billion) credit guarantee program to support the development of cloud infrastructure, hardware and semiconductors.

Pai’s proposal would dwarf India’s existing AI efforts. In 2024, New Delhi approved the IndiaAI mission with an expenditure of ₹103.72 billion (about $1.2 billion) over five years, aimed at expanding computing infrastructure, supporting startups and developing indigenous AI capabilities.

Despite growing interest in AI and New Delhi’s push to develop domestic capabilities, India remains a relatively small player in frontier model development. Only a handful of startups are pursuing foundational AI models, including Sarvam, which released open-source models earlier this year. However, another high-profile AI startup, Krutrim, focused on cloud and AI infrastructure services after initially positioning itself around fundamental model development.

Much of the Indian AI ecosystem has instead focused on applications and specialized models built on top of existing base models. Recent examples include Avataar AI, which launched a video generation model earlier this week aimed at providing a cheaper alternative to offerings from rivals including Google’s Veo, Kling, Luma and Runway.

Not everyone agrees that the main challenge is a lack of capital. In response to Pai’s comments, Lightspeed partner Hemant Mohapatra argued that the biggest constraints to building globally competitive AI companies are talent, access to computing resources and execution, not just the size of investment commitments.

Mohapatra estimated that training a groundbreaking AI model could cost hundreds of millions to several billion dollars depending on the approach, but said successful AI companies have historically scaled their capital requirements over time as adoption grew.

But for some policy observers, the implications extend far beyond AI startups or model providers.

Prasanto Roy, a New Delhi-based technology policy expert who advises multinational companies, said the episode was likely to reinforce concerns within the Indian government about strategic autonomy, compared to the lesson many countries learned from Russia’s loss of access to SWIFT and other parts of the global financial system after its invasion of Ukraine.

He told TechCrunch that this move would likely trigger a significant nationalist backlash in India and described it as an ill-conceived decision by Washington, with consequences that extend far beyond Anthropic itself.

“Even if this is corrected or reversed, the anthropic episode shows that there is no such thing as a geopolitically neutral foreign LLM,” Roy said. “American AI models are tied to American geopolitics.”