Artificial Intelligence (AI)-powered services have emerged as a pivotal force in transforming the structure and dynamics of digital trade, particularly in rapidly evolving economies such as India. This study investigates the role of AI-enabled services as a catalyst for digital trade growth through a comparative analysis of traditional digital service models and AI-integrated frameworks. The findings indicate that India has strengthened its position in global digital trade, ranking among the top exporters of digitally delivered services, supported by ICT exports exceeding USD 162 billion. The integration of AI has significantly enhanced operational efficiency, service personalization, and scalability across key sectors including finance, e-commerce, healthcare, and logistics. Empirical evidence shows that AI adoption among Indian enterprises has reached nearly 87–90%, contributing to improved productivity, cost reduction, and data-driven decision-making. Additionally, the Indian AI market has witnessed rapid expansion, growing from USD 2.97 billion in 2020 to USD 7.63 billion in 2024, with strong future growth potential. Comparative analysis further reveals that AI-powered services outperform conventional digital systems by enabling automation, predictive analytics, and real-time responsiveness, thereby improving trade efficiency and global competitiveness. Government initiatives such as Digital India, India AI Mission, and robust digital public infrastructure have further accelerated this transformation. However, challenges such as uneven adoption, skill gaps, data privacy concerns, and infrastructural disparities remain significant barriers to inclusive growth. The study concludes that while AI serves as a critical driver of digital trade expansion, strategic policy interventions and capacity-building measures are essential to fully harness its potential and ensure sustainable development.