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Fueled by talent growth and continued investment, the Artificial intelligence (AI) market in India is forecast to grow at 31.5 per cent CAGR (compound annual growth rate) to reach $5.1 billion by 2027, a new report showed on Tuesday.

The AI software sector will be the primary driver of overall growth, reaching $2.6 billion by 2027, according to the report unveiled at 'Intel-AI For India' event.

The AI infrastructure spending is projected to reach $733 million in the same period.

"With an unmatched talent pool, frugal innovation and data at scale, India stands poised to lead the global AI revolution. India's commitment to AI, underscored by its proactive approach, is driving transformative growth," said Santhosh Viswanathan, Vice President and Managing Director, India Region, Intel.

AI spending in India is set to undergo the swiftest expansion among the eight examined markets - Australia, India, Indonesia, Japan, Korea, Malaysia, Singapore, and Taiwan.

"Boasting 20 per cent of the world's data and AI talent, India's strategic position as a global AI leader is reinforced by its robust developer community and skill penetration, poised to surpass even the US," the report mentioned.

Investments in AI in 2024 and 2025 will prioritise the development of AI infrastructure, laying the foundation for high-value use cases that promise transformative impacts in the future.

Notably, the BFSI (banking, financial services and insurance) and manufacturing sectors are emerging as the top spenders in the country.

India has outperformed the Asia-Pacific average in the government dimension because of the Prime Minister Narendra Modi-led government's pro-AI stance.

About $30.7 million is earmarked in FY2024-25 to establish three centers of excellence in AI in the country, focusing on agriculture, health and sustainable cities.