Impact of AI on Business Laws

Abstract

Introduction

Artificial Intelligence (AI) has become a fundamental part of modern business, enhancing efficiency and innovation across industries like finance, retail, healthcare, and HR. However, AI also raises complex legal challenges since existing business laws were not designed with autonomous machines in mind. Key legal issues include liability for AI errors, intellectual property rights over AI-generated content, data privacy, employment law concerns, and competition law related to AI-driven market behaviors.

In India, the legal framework is still evolving. The Indian Contract Act struggles to address smart contracts, intellectual property laws don’t recognize AI as a creator, and data protection laws like the Digital Personal Data Protection Act, 2023, lack AI-specific provisions. Liability remains unclear under tort and consumer protection laws, especially with AI’s “black box” decision-making. Employment laws have not adapted to algorithmic hiring and surveillance, risking privacy and fairness. Competition regulators are beginning to address AI’s potential for anti-competitive behavior.

Regulatory responses in India include sector-specific guidelines, the National AI Strategy by NITI Aayog, and the proposed Digital India Act, aiming for more comprehensive AI governance. Still, significant gaps remain in legal clarity and enforcement, posing challenges for businesses, consumers, and regulators.

Notably, Indian courts are starting to address AI-related legal issues, as seen in a 2024 case protecting celebrity rights against unauthorized AI-generated likeness use.

Conclusion

The rapid adoption of Artificial Intelligence (AI) in the Indian business landscape is fundamentally altering how companies operate, make decisions, and interact with consumers. While AI offers significant benefits in terms of efficiency, cost reduction, and innovation, it also presents serious legal and regulatory challenges. India\'s existing legal framework—largely built around human actors and traditional modes of commerce—is struggling to adapt to the complexities introduced by AI-driven systems. One of the core legal issues is the question of accountability and liability. Indian tort and consumer protection laws do not currently account for harms caused by autonomous AI systems. When an AI makes an erroneous or biased decision—such as rejecting a loan application or making a faulty medical diagnosis—it is unclear who should be held responsible: the developer, the business using the AI, or the AI system itself. This lack of legal clarity increases risk for both businesses and consumers. Intellectual property law presents another challenge. AI is now capable of generating creative and technical outputs, but Indian copyright and patent laws require human authorship or inventorship. This limits protection for AI-generated innovations, discouraging investment in AI-driven R&D and creating uncertainty over ownership rights. In the area of data privacy, AI systems often rely on personal data to function effectively. While the Digital Personal Data Protection Act, 2023, introduces some safeguards, it does not yet directly regulate AI-specific risks like profiling or automated decision-making. Without clear rules on algorithmic transparency and fairness, businesses risk breaching ethical and legal boundaries. Additionally, the use of AI in employment—from hiring algorithms to performance monitoring tools—raises concerns about discrimination and fairness. Indian labor laws have not yet caught up with these developments, leaving workers vulnerable to opaque and potentially biased decision-making processes. Despite these challenges, India is beginning to respond through policy and legislative initiatives. The proposed Digital India Act and regulatory efforts by bodies like NITI Aayog, RBI, and SEBI indicate a shift toward more adaptive governance. However, these efforts remain fragmented. In conclusion, India must develop a comprehensive and future-ready legal framework that addresses the unique challenges posed by AI. Balancing innovation with accountability, and business growth with ethical safeguards, will be essential to ensuring that AI supports an inclusive, transparent, and sustainable digital economy.

Copyright

Copyright © 2025 Janhvi Ahuja. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.