Artificial Intelligence (AI) is increasingly becoming a central force in shaping modern economic policies across the globe. Governments are integrating AI-based tools to improve decision-making processes, enhance productivity, optimize resource allocation and address structural inequalities. In developing economies such as India, where agriculture remains a dominant sector, AI-driven interventions are particularly significant. Karnataka, a leading technological hub with a strong agricultural base, provides an ideal case for examining how subnational economic policies leverage AI for inclusive development. This research article explores the intersection between AI and economic policymaking, focusing on global trends and Karnataka-specific applications. It examines how AI contributes to productivity growth, employment transformation, inequality mitigation and sustainable agricultural practices. Drawing upon theoretical frameworks, empirical evidence and policy initiatives, the study highlights the opportunities and challenges associated with AI integration. While theoretical models predict significant gains in output and efficiency, empirical evidence on employment and distributional impacts remains mixed. The article concludes with policy recommendations aimed at ensuring that AI-driven economic transformation remains inclusive, equitable and sustainable.