Digital transformation has emerged as a critical enabler of sustainable development, particularly in balancing economic growth with environmental sustainability within the framework of the Sustainable Development Goals (SDGs). This study examines the role of Artificial Intelligence (AI) in driving this transformation in the Indian context. India’s digital economy is projected to reach USD 1 trillion by 2030, contributing nearly 20% to GDP, reflecting the growing significance of AI-led innovation. The study adopts a descriptive and analytical approach based on secondary data collected from government reports, international organizations, and recent industry studies (2020–2025). The findings reveal that AI significantly enhances sectoral performance by improving productivity, efficiency, and resource optimization. In agriculture, AI-driven precision farming increases productivity by 15–20% while reducing water consumption by 20–30%. Similarly, AI-enabled smart energy systems improve efficiency by up to 25%, while applications in manufacturing and logistics reduce operational costs by 10–15%. These advancements contribute directly to multiple SDGs, including SDG 2, 7, 9, and 13. However, the study also highlights emerging environmental challenges associated with AI expansion, such as rising energy consumption in data centres, projected to reach 57 TWh by 2030, along with increasing water usage and e-waste generation. The study concludes that while AI-driven digital transformation offers substantial opportunities for sustainable growth, it also necessitates the adoption of Green AI practices, renewable energy integration, and robust policy frameworks. A balanced and strategic approach is essential to ensure inclusive, environmentally responsible, and long-term development in India.