REGULATORY SANDBOX (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     15th May 2024        

Context: Recently, governments and regulatory bodies have embraced innovative approaches like "AI regulatory sandboxes" to navigate the dual landscape of unprecedented opportunities and complex challenges posed by the advancement of Artificial Intelligence (AI) technologies worldwide.

Regulatory Sandbox

  • About: It refers to live testing of new products or services in a controlled regulatory environment, providing a "safe space" for businesses.
  • Participants and Processes: The sandbox involves regulators, innovators, financial service providers, and customers conducting field tests to assess the benefits and risks of new financial innovations.
  • Duration of the Sandbox Testing: The sandbox testing stage lasts for a maximum of twelve months and can be extended upon the applicant's request, subject to approval by the steering committee.
  • Stages of Sandbox Testing
  • Stage – I:  Restricted access to the test environment will be granted, and there will be limitations on resource usage including processing power, memory, and storage.
  • Stage – II: The restrictions on resource usage will be lifted, contingent upon the availability of resources at that specific moment.


  • Regulatory sandboxes offer a controlled setting for testing AI technologies.
  • They facilitate collaboration between innovators and regulators, enhancing understanding and cooperation.
  • Sandboxes mandate participants to disclose information about AI models, ensuring transparency and accountability.
  • Mandating risk assessments and safeguards, sandboxes encourage responsible innovation in AI development.

India’s approach to AI

  • NITI Ayog's National Strategy: In India, NITI Ayog released a discussion paper outlining a national strategy for AI, which led to the establishment of the national AI Portal.
  • MeitY's AI Innovation Report: The Ministry of Electronics and Information Technology (MeitY) released a report on AI Innovation 2023, highlighting India’s AI vision through seven working groups.
  • Proposal of the Digital India Act: The latest proposal of the Digital India Act, 2023, also talks about regulating AI by creating a separate set of laws and regulations.
  • Multifaceted Approach to Regulation: India’s interest in regulating AI is grounded in a multifaceted approach encompassing economic ambitions, ethical considerations, job creation, industrial transformation, and overall societal welfare.

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