In 1956, a young mathematics professor at Dartmouth College brought together some of the brightest minds in computing and cognitive science to develop ideas about thinking machines and called the subject “artificial intelligence” (AI). Nearly seven decades later, the global AI industry is valued at $621.2 Bn and is expected to reach a market size of $1.3 Tn by 2030.
From big tech firms like Meta and Google to banking giants like JP Morgan and Bank of America, and manufacturing majors such as Apple and Toyota Group, everyone seems to be going the whole hog to adopt AI into their day-to-day operations.
In India, too, AI adoption is on the rise across the board. In the financial year 2023-24 (FY24), the rate of AI adoption was highest in the fintech sector at 68%, followed by the tech industry at 60-65%, healthcare at 52%, retail at 43%, and manufacturing at 28%.
Despite this, India’s large-scale enterprises such as TCS, Wipro and Infosys seem to be lagging behind their global peers in terms of AI adoption for reasons ranging from strict adherence to established processes to stringent compliance requirements.
However, homegrown startups are increasingly integrating AI, particularly generative AI (GenAI), into their products and services, as per Inc42’s ‘The Rise Of India’s GenAI Brigade’ report.
In an Inc42 survey of more than 50 VCs about GenAI adoption by non-GenAI startups in their portfolios, 43% said that AI or GenAI is now a key part of their product and service roadmap.
India is currently home to over 200 GenAI startups, which raised more than $1.2 Bn in funding between 2020 and the third quarter (Q3) of 2024.
According to industry body Nasscom, AI is expected to add a whopping $500 Bn to India’s gross value added (GVA) by FY26. The government, too, is cognisant of the importance of AI adoption.
Earlier this year, Prime Minister Narendra Modi said India should lead the AI revolution and called on the country’s tech ecosystem to ensure this outcome. On its part, the government has taken a number of steps to further develop the AI ecosystem in the country.
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India’s Policy Push For AI
India’s GenAI market, currently valued at $1.6 Bn, is expected to become a $17 Bn opportunity by 2030, which is expected to further drive the demand for semiconductor chips. As a result, the union government is actively wooing tech giants with incentives to set up electronics and semiconductor chip manufacturing units as well as data centres in the country.
In March, the union cabinet approved the IndiaAI Mission with an outlay of INR 10,372 Cr spread over the next five years. As part of the initiative, the Centre aims to offer incentives and subsidies to private companies to scale up India’s AI compute capacity.
Under the IndiaAI Mission, the Centre plans to establish an AI compute infrastructure with over 10,000 GPUs through a public-private partnership. The initiative will also help in the development of AI foundational models with a capacity of more than 100 Bn parameters trained on datasets covering major Indian languages for priority sectors like healthcare, agriculture, and governance.
Not stopping there, the government wants to integrate AI with India’s digital public infrastructure. As part of this, the department of science and technology (DST) in October 2024 put into motion the BharatGen project, which is being touted as the world’s first state-funded multimodal large language model (LLM) project.
Not just this, the ministry of agriculture has also launched the ‘AI For Agriculture’ initiative to promote AI adoption in the agriculture sector through partnerships with industry and academia. Then, there is also the National Pest Surveillance System, which leverages AI and machine learning to detect crop issues in a timely manner.
“The creation of a public digital AI infrastructure will unlock unprecedented opportunities for startups to innovate at scale, further positioning India as a global leader in AI-driven solutions,” Anirudha A Damani, managing partner at Artha Venture Fund, told Inc42.
While the AI-powered digital public goods infrastructure is being set up, priority will also be placed on developing an AI marketplace that offers AI-as-a-Service (AIaaS) and pre-trained models. Further, it will also pave the way for the establishment of AI research, development, and innovation centers across the country.
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Notably, the Centre’s push for AI is already yielding results. Tech giants such as Microsoft, Amazon, Google, Apple, and NVIDIA are preparing to invest billions of dollars to boost the computing infrastructure in the country as they look to dominate the burgeoning GenAI market.
As per reports, Amazon has agreed to invest $3.7 Bn for construction of data centres in India. This is expected to add 660 MW to its existing IT capacity. Further, Amazon has unveiled plans to invest $12.7 Bn in cloud infrastructure in India by the end of the decade.
While GenAI use cases are numerous, there are also a number of issues facing the growth of the AI ecosystem in the country. A major headwind to the percolation of GenAI appears to be scarcity of talent.
Talent Crunch A Key Hurdle
Of the over 50 VCs surveyed by Inc42, 68% said that a lack of high-quality talent is the biggest roadblock to India’s GenAI revolution. A recent Amazon Web Services survey also revealed that 79% of Indian businesses find it challenging to find AI talent.
This talent gap persists despite India producing lakhs of computer science graduates every year. Startup founders that Inc42 spoke to previously said that outdated curriculum is the biggest reason behind India’s ailing GenAI talent pool.
However, the government aims to address these shortcomings through the IndiaAI Mission. As part of the initiative, it plans to introduce AI training in the existing engineering curriculum. Besides, the National AI Skilling Framework, introduced last year, aims to train over 1 Mn new data science professionals annually.
Further, the government has also launched the IndiaAI FutureSkills initiative aimed at removing barriers to AI education by expanding undergraduate, masters and PhD courses and setting up data and AI labs in Tier II & III cities.
Can Centre’s AI Push Boost The Startup Ecosystem?
While the Centre has pulled out all stops to build the necessary infrastructure to pave the way for the AI boom, it remains to be seen how much of the policy push percolates to the bottom of the funnel. Nevertheless, industry stakeholders opine that the Centre’s schemes and sops will help create a vibrant GenAI ecosystem in the country.
Government initiatives like IndiaAI Mission and Future Skills will position India as a global AI leader and an attractive destination for global investors, Anuj Srivastava, cofounder of fintech-focussed GenAI startup OnFinance, told Inc42.
For startups, such policies will open up new opportunities, through public-private collaborations, access to government funding and lead to better innovation, accelerating growth in sectors such as BFSI, healthcare and agriculture, Srivastava added.
While AI adoption is on the rise in India, it still hasn’t matured as compared to other major economies such as the US and China due to a talent scarcity. Moreover, countries like the US have a far more advanced technology infrastructure and robust funding for startups, according to Pranav Pai, founding partner at 3one4 Capital.
Pai believes that if the government prioritises budgetary allocations to strengthen India’s indigenous AI capabilities, the country’s academia and startups would rise to the challenge and deliver transformative outcomes.
The track record of initiatives like Aadhaar, UPI and FASTag underscores the potential for such collaborative programmes to yield fruitful results, Pai noted.
“If the Centre can effectively integrate research and commercialisation with the overarching goal of economic advancement, this approach could extend into key sectors such as energy, artificial intelligence, frontier technologies, defense, mobility, advanced materials, synthetic biology, and quantum computing,” Pai said.
Echoing similar sentiments, Artha Venture’s Damani said that expanding grant programmes for AI-specific research and development and incentivising AI adoption in key industries can further accelerate growth.
“Moreover, targeted policies that reward startups solving India-specific challenges in areas like logistics, climate change, and public health would create a fertile ground for sustainable AI-driven innovation,” he said.
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Industry Calls For Sectoral Approach To Regulate AI
Amid all the hullabaloo around AI, there continues to be one sticking point that has remained a thorn in the flesh of India AI startups – regulations. Currently, AI is governed by existing provisions on data privacy, cybersecurity and copyright laws, and there is no regulatory framework to govern AI in the country.
This leaves the burgeoning AI ecosystem in the country with a big question mark that it has no answers to. Amid the regulatory uncertainty, startup founders and investors are seeking a sector-specific approach for AI regulation instead of a one-size-fits-all policy.
“Existing laws on data privacy and cybersecurity are useful but don’t address the unique challenges posed by AI, such as the risk of bias, lack of transparency in decision-making, and accountability for errors,” OnFinance’s Srivastava said.
In order to address these gaps, the government needs to adopt a sectoral approach. For example, Srivastava said that the major regulatory focus for AI in the fintech sector should be on ensuring that existing models used for credit scoring and fraud detection are free from biases, which often puts low-income individuals at a disadvantage.
“A one-size-fits-all regulatory approach would be inefficient for AI, as its applications across different sectors come with varying risks, requirements, and opportunities,” he added.
Artha Venture’s Damani also said that a phased roll out of regulations tailored to specific AI applications in healthcare, fintech and other sectors would be more effective than a universal law. He added that stringent regulatory frameworks could stifle growth of early-stage startups.
[Edited By Shishir Parasher]
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