Artificial Intelligence (AI) describes systems that can replicate human thought processes, including learning, reasoning, and making decisions. These abilities are driven by sophisticated algorithms, data analysis, and the recognition of patterns. The development of AI has been sometimes compared to the invention of electricity since it has as diverse applications as the usage of electricity. It can be used across multiple sectors of the economy including agriculture, healthcare, manufacturing, urban transport, disaster management, education, policy making, cyber-security, governance, energy solutions, and supply chain management. Artificial intelligence enhances predictive analytics, enabling improved planning and immediate interaction with citizens, contributing to more inclusive governance. It can also boost the operational efficiency of managing large systems. In India, the AI-enabled digital public-infrastructure platforms like Aadhaar, Digiyatra, UPI, and DigiLocker have revolutionised governance. This paper explores the various initiatives adopted by the state governments in India to use AI technology to develop and transform Indian cities into smart cities. The paper also seeks to examine the opportunities that AI offers as well as the challenges that the governments must address for successful integration of AI into the designing of these cities. The government needs to play the balancing act between innovation and ethical concerns.