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India’s fast-growing AI startup scene, driven by pride and potential, now stands at a turning point. Policy and planning will define what comes next
Image Source: Getty
“The world acknowledges that Artificial Intelligence (AI) means India’s upper hand. Now, our job is not to miss the opportunity.”
These are the words of India’s Prime Minister (PM) Narendra Modi while inaugurating the ‘Startup Mahakumbh, 2024’, highlighting the steady emergence of India as a key player in the global AI revolution. While the PM emphasised the nation’s potential to gain a competitive edge in AI, he also underscored the importance of leveraging AI’s projected US$ 15.7 trillion contribution to the global economy by 2030 towards our own growth story.
Leading tech giants echo these sentiments. While praising India’s digital transformation and growing AI readiness, Google’s Chief Executive Officer (CEO), Sundar Pichai, highlighted the nation's push towards exploring more private investments in AI applications across key sectors such as healthcare, education, agriculture, and others. On a similar note, Nvidia CEO Jensen Huang pointed out India’s potential to transition from an Information Technology (IT) outsourcing hub to an AI innovation powerhouse, considering its high technological expertise and vast data resources.
While praising India’s digital transformation and growing AI readiness, Google’s Chief Executive Officer (CEO), Sundar Pichai, highlighted the nation's push towards exploring more private investments in AI applications across key sectors such as healthcare, education, agriculture, and others.
With competitors like the United States (US) launching initiatives such as the privately led Stargate Project to strengthen their AI capabilities, India must adapt, build innovative capacities, and foster a globally competitive domestic AI startup ecosystem. Failing to do so could leave the nation lagging in a rapidly evolving technological landscape.
India has made significant strides in AI, emerging as a key player in the global AI landscape. According to Stanford University’s AI Index Report, 2024, India ranks seventh globally in aggregate private AI investments between 2013 and 2023, with a total of USD 9.85 billion. The US leads with US$ 335.2 billion, followed by the Republic of China (US$ 103.7 billion) and the United Kingdom or UK (US$ 22.3 billion). India ranks seventh in terms of newly funded AI companies during the same period, with 338 firms— behind the USA (5,509), China (1,446), and the UK (727), which hold the top three spots. Presently, Start Up India recognises 154,719 startups in India, of which 2,915 are AI-focused, collectively generating 23,918 jobs. This marks a remarkable transformation from the 500 startups India had in 2016.
India's AI market, valued at US$ 7–10 billion, is projected to grow at a compound annual growth rate (CAGR) of 25–35 percent by 2027, aligning with AI’s global expansion. This progress has been achieved through concerted policy efforts to achieve three broad objectives—build an organic domestic AI infrastructure, boost its research and development (R&D) capacities, and nurture and scale AI startups. Various initiatives across diverse verticals have been launched over time to achieve this.
India's AI market, valued at US$ 7–10 billion, is projected to grow at a compound annual growth rate (CAGR) of 25–35 percent by 2027, aligning with AI’s global expansion.
At a Policy and Programmatic Level: India’s AI strategy is crucial in developing AI startups by fostering innovation, enabling data ecosystems, and ensuring ethical AI deployment. The National Strategy for AI focuses on key sectors— healthcare, agriculture, smart mobility, manufacturing, and education— driving research, workforce skilling, and reducing adoption barriers to create a thriving startup ecosystem. By addressing risks like bias, accountability, and privacy, NITI Aayog’s Principles for Responsible AI (Part 1, 2021) provide an ethical framework that ensures AI development aligns with India’s legal and moral standards. Part 1 defines guiding principles of transparency, fairness, inclusivity, and security, while Part 2 (2021) operationalises these principles by outlining the roles of government, private sector, and research institutions. The private sector is encouraged to integrate ‘ethics by design’ into AI solutions, fostering a trusted and responsible AI ecosystem. These initiatives can empower AI startups to innovate responsibly, scale effectively, and contribute to India’s vision of becoming a global AI leader.
Furthermore, the IndiaAI Mission is pivotal in fostering AI startups in India by providing critical infrastructure, funding, and policy support. Through the IndiaAI Startup Financing pillar, the mission accelerates deep tech AI startups by ensuring streamlined funding access to develop innovative AI projects. Further strengthening India's AI ecosystem, the 2025-2026 Union Budget allocated INR 2,000 crore to the Ministry of Electronics and IT (MeitY) for the mission. This funding will support at least 25 deep tech startups, industry-led projects, establish 20 AI curation units across central ministries and 80 IndiaAI labs nationwide. Additionally, the mission facilitates the empanelment of companies to bring over 18,000 Graphics Processing Units (GPUs) at affordable rates for startups, academia, and researchers, allowing them to train AI models and conduct large-scale data analysis. The IndiaAI Mission aims to position India as a global leader in AI-driven innovation by fostering entrepreneurship, enhancing AI competitiveness, and promoting ethical AI development.
The IndiaAI Mission is pivotal in fostering AI startups in India by providing critical infrastructure, funding, and policy support.
India’s indigenous large language models (LLMs): The Indian AI ecosystem’s rapid evolution, with key initiatives such as BharatGen, Bhashini, and Krutrim AI Labs, underscores India’s vital role in fostering AI startups and innovation. BharatGen, the world’s first government-funded multimodal Large Language Model (LLM) initiative, is revolutionising public service delivery by developing AI models tailored to India’s linguistic and cultural diversity. By democratising AI access and reducing dependence on foreign technology, it seeks to provide startups with India-centric datasets and advanced AI capabilities for industry-wide adoption by 2026.
Bhashini enhances digital inclusion by leveraging AI-driven translation and voice-based services, overcoming language barriers to improve accessibility in financial services and literacy sectors. With a structured evolution plan, it fosters innovation and entrepreneurship in AI-driven language technologies. Krutrim AI Labs, India’s first frontier AI research lab, is accelerating indigenous AI development by creating models like Krutrim-1 (India’s first LLM), Vyakyarth-1 (Indic embedding model), and Dhwani-1 (speech LLM). Its cutting-edge solutions, such as—the Document Intelligence Stack (DIS) for Optical Character Recognition (OCR) and Drishti, a video intelligence platform—provide startups with foundational AI tools for diverse applications. With the upcoming launch of Krutrim-2 in February 2025, these initiatives collectively empower AI startups with critical infrastructure, research support, and scalable AI models, helping position India as a global AI powerhouse.
Boosting India’s Compute Capabilities: India’s advancements in Quantum Technology (QT) and Semiconductors are essential in strengthening its AI ecosystem by enabling high-performance computing, securing communications, and advancing microelectronics. To that effect, the National Quantum Mission seeks to drive innovation in quantum computing (with 50-1000 qubit processors), secure satellite-based quantum communication over 2000 kilometres (KM), and quantum networks. These developments will benefit AI-driven sectoral applications and thus power startups to innovate upon such foundational competencies. Under this initiative, eight startups have been further selected to drive innovation in advanced technologies, quantum computing, communication, sensing, and materials, aligning with India's goal of technological self-reliance by 2047. By supporting initiatives like Digital India, Make in India, and Sustainable Development Goals (SDGs), quantum advancements will power next-generation AI applications that demand high computational speeds and encryption technologies.
Eight startups have been further selected to drive innovation in advanced technologies, quantum computing, communication, sensing, and materials, aligning with India's goal of technological self-reliance by 2047.
Through such transformative endeavours, India seeks to slowly transition into a knowledge-centric digital economy that is self-reliant and at the forefront of technological innovation. India recognises that the way to get there is through private innovation assisted by public handholding, supportive systems, and environments throughout the process. These initiatives have indeed had a defined impact on India’s startup landscape.
Nonetheless, much more may need to be done if India is to scale up its ambitions of becoming a leader and pioneer in AI startup-led innovation and a solution-based economy.
Establishing a dedicated AI regulatory body and strategic national investments in AI infrastructure are crucial for fostering India’s thriving AI startup ecosystem. As AI technologies expand across sectors, a central regulatory authority would ensure ethical deployment, regulatory compliance, and responsible innovation, addressing risks such as bias, misuse, and data privacy concerns. This would enhance public trust in AI applications and align India’s AI ecosystem with global best practices, creating a stable and predictable policy environment for startups.
By expanding institutional supercomputing capacity and leveraging global partnerships, AI startups would gain access to critical computational resources, reducing barriers to innovation and scaling AI-driven solutions.
Simultaneously, strengthening national AI capabilities through supercomputing investments and bilateral partnerships is essential to support machine learning, deep learning, and large-scale AI model development. India’s computing infrastructure lags behind global standards and necessitates strategic investments in AI infrastructure, public-private collaborations, and decentralised compute marketplaces. By expanding institutional supercomputing capacity and leveraging global partnerships, AI startups would gain access to critical computational resources, reducing barriers to innovation and scaling AI-driven solutions. These efforts collectively enable India to build a robust AI ecosystem that supports entrepreneurial growth, technological self-reliance, and long-term AI-driven economic expansion.
Lastly, according to the ‘Freshworks’ AI Workplace Report’, 88 percent of India’s AI-focused businesses are investing in AI training to future-proof their workforce, the highest among global counterparts, including the UK (66 percent), Australia (62 percent), and Europe (67 percent). While this shows India’s future-readiness to adopt AI and its solutions in their day-to-day operations, it also highlights a dearth of readily available AI-specific skilled workforce in the nation. Such skilled manpower is essential to handle issues related to AI and all its aspects— maintenance, compliance, and legal, to name a few. For India’s AI startup ecosystem to flourish, such sector-specific issues and a lack of skilled workers may need to be urgently addressed through targeted policy choices, industry-academia collaborations in designing AI application-specific curriculum and imparting the necessary skill sets required to address this skill issue.
Debajyoti Chakravarty is a Research Assistant at the Observer Research Foundation.
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Debajyoti Chakravarty is a Research Assistant at ORF’s Center for New Economic Diplomacy (CNED) and is based at ORF Kolkata. His work focuses on the use ...
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