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I have the SAME EXACT issue.
However, a twist - dictation in POWERPOINT works fine - click on dictate > get red dot on white microphone > start talking.
In WORD, the system tray says that Word is using the microphone, but the mic remains blue, does something for a couple of seconds, and then throws the internet connection Indian grammar error.
I've cleared out all Office settings, rebooted, etc. - and still have the error.
Also:
- Dictation in Office Online (via browser) works
- Regular dictation through Windows 10 works.
- On another user account - same machine - Word dictation does work.
So this is absolutely an ISOLATED ERROR and ISSUE with Word (or Windows configuration), and not a single person at Microsoft has a clue why.