India will invest $1.2 billion in a wide range of artificial intelligence projects as the world's most populous country stakes a claim to the burgeoning sector.

The funds will be used to set up computing infrastructure and help finance AI startups, a statement from the information technology ministry said late Thursday.

Junior minister Rajeev Chandrasekhar said the investment "will catalyze India's AI ecosystem and position it as a force shaping the future of AI for India and for the world".

India's nascent AI market will be worth $17 billion by 2027, according to current forecasts by local IT industry body Nasscom.

That figure represents a tiny slice of the global market for AI software, which US research firm Gartner said could touch $297 billion by the same year.

India boasts a vast software services industry built from the global outsourcing boom beginning in the 1990s, and AI software represents both an opportunity and a threat.

Engineering graduates working in traditional call centre or coding roles could see their jobs threatened by AI models.

OpenAI chief executive Sam Altman told an audience in New Delhi last year that Indian entrepreneurs and companies would struggle to build AI products without significant financial backing.

India's public and private sectors have made initial attempts at creating AI applications.

A partnership between billionaire tycoon Mukesh Ambani's Reliance Industries -- India's largest company by market capitalisation -- and the country's top universities is expected to roll out a ChatGPT-style chatbot application this month.