India, May 27 -- Former Reserve Bank of India governor Raghuram Rajan has warned that the global frenzy around artificial intelligence may be overlooking major economic and political risks, arguing that investors and policymakers are treating the sector with excessive optimism despite mounting vulnerabilities.

In a recent Project Syndicate column titled "A Cold Shower for the AI Mania," Rajan said the rapid rise of generative AI has created a market euphoria similar to earlier technology booms, even as key structural challenges remain unresolved.

Rajan argued that one major risk is the growing dependence of AI companies on debt financing. He said firms are investing heavily in data centres, chips and computing infrastructure without cle...