India’s AI Evolution: Moving Beyond Consumption

India has had a one-sided relationship with AI.

Despite being one of the largest consumers of AI tools, India hasn’t seen any breakthrough AI products coming out of the country. Well, Perplexity is the one shining star, created by an Indian-origin founder, but it is based out of the US, and for a good reason.

So when Indian Minister of Commerce and Industry Piyush Goyal, earlier this month, said Indian startups should focus more on deep tech, AI, semiconductors and EVs, instead of food delivery, quick commerce and fancy icecreams and cookies—it did hit a nerve for some and rubbed others the wrong way.

However, saying Indian startups aren’t innovating enough isn’t fair. Because there is more to what meets the eye.

India ranks fourth out of 36 countries in Stanford’s Global AI Vibrancy Ranking, behind the US, China, and the UK. Thanks to a large pool of AI engineers, increasing government support, and investments from companies like TCS, Infosys, and Reliance.

In this edition of Hedwig by The Content House, Avanish Tiwary looks at how India is evolving from AI consumer to AI creator.

Let’s dive in:

Indian Founders Move Fast & Smart

India is famous for jugaad, a way of solving problems creatively and with a flexible approach using limited resources. By extension of this notion, most Indian entrepreneurs don’t believe in reinventing the wheel.

This is evident with the large number of smaller companies that are building applications based on the existing AI models, rather than a handful of companies investing billions to create foundational models from scratch.

(India does have entrepreneurs who are working on Indic large language models on a reasonable budget, but very few. We will get to that later.)

India is a power hub for SaaS startups, the kind that help global companies run their operations smoothly and efficiently. According to Bessemer Venture Partners, a whopping 92% of Indian SaaS startups jumped on the AI bandwagon last year, adding machine learning and natural language processing to make their software smarter and more intuitive. And this momentum has continued into early 2025.

Beyond the SaaS companies, an increasing number of Indian companies are integrating AI into their core business propositions, instead of using it just as an enabler to make operations more efficient. Moreover, India leads in Agentic AI adoption, with 80% of firms exploring this emerging concept.

Notably, more startups are coming up to develop AI services, leveraging the existing AI platforms. The first quarter of 2025 alone saw the creation of 28 new AI startups, reflecting a young and growing AI ecosystem. This adds to the expanding pool of over 8000 AI-enabled startups, which includes over 200 GenAI startups.

Source: Stanford Institute for Human-Centered AI's Global AI Power Rankings 2024

Indian Government Wants To Become The Biggest Backer of AI Startups

With its IndiaAI Mission, launched in March 2024, India wants to reduce dependency on foreign AI technologies and build a self-reliant AI ecosystem that reflects the country's linguistic diversity, ethical values, and cultural priorities. For this vision, the country has committed US$1.2 billion (INR 10,300 crores) for AI infrastructure.

The money will go into expanding computing power, increasing companies’ access to GPUs, developing advanced AI models tailored to Indian needs and strengthening semiconductor manufacturing. If things go as planned, it will help AI startups in the long run.

However, for the short to mid-term, AI funding remains a challenge.

The risks of inadequate support become painfully clear in cases like Unikon.AI, which, despite raising US$3 million and pouring months of hard work into their AI venture, ultimately had to pivot — a harsh reality many AI startups might have to encounter in their journey. Unikon had to abandon its original vision of an AI-powered networking platform and launch a direct-to-consumer brand instead, highlighting just how challenging building a successful AI company can be without proper long-term backing.

This is precisely why India needs investment funds with a long-term perspective if it hopes to produce meaningful generative AI companies that can truly make an impact.

The Indian government seems to have realised this.

During a recent grand event titled Startup Mahakumbh, Commerce Minister Piyush Goyal announced the government will back deep tech startups via an INR 10,000 crore Fund of Funds. While it’s yet to be seen how many AI startups benefit from this, the hope is that it will provide the ecosystem the boost that it desperately needs.

The minister said that this corpus will be available for startups working in the field of AI, machine learning (ML), robotics, biotechnology, semiconductor design and other cutting-edge technologies.

Venture Capitalists are Bullish on Indian AI Startups

With more than 8,000 startups in the country claiming to be AI-enabled, VCs have their job cut out for them. They have their eyes peeled for anything remotely interesting in the deeptech category.

A 2025 report by SenseAI Ventures said Indian AI startups raised US$1.35 billion in 2024, with Bengaluru (India's tech hub) grabbing nearly 40% of that cash. This momentum has carried right into 2025, with investors particularly keen on AI applications that solve enterprise problems.

The funding trend in Indian AI startups is in contrast with what’s happening in the US, where most of the investment is going into startups working on foundational AI and building infrastructure ground up.

VC funds in India are specifically looking to back deeptech companies that create practical AI applications with concrete use cases they can see working. According to the SenseAI Ventures report, more than 90% of funding went into startups building AI applications and tools.

With the way money is flowing into AI applications trying to solve real problems, SenseAI Ventures expects to see 100 AI unicorns in the next 10 years.

Given that scores of top brass from Indian tech companies such as Ola’s AI arm, Krutrim, Udaan, MPL, and Myntra, among others, have left to start their AI companies over the past year, this expectation doesn’t seem far-fetched.

These new founders are mostly interested in AI-driven enterprise IT solutions, PaaS (platform-as-a-service), AI in healthtech and fintech, and agentic AI systems.

Source: Stanford Institute for Human-Centered AI's AI Index Report 2025; it doesn't include the United States' $500 billion investment in the Stargate project, announced in 2025.

India is Charting Its Unique Path

While a majority of AI companies are focused on solving real-world problems, a handful of them are developing homegrown foundational models.

Since investors are on the lookout for startups building AI and deeptech products and services, the Indian government has taken the responsibility of supporting those building AI infrastructure to fuel these AI companies.

Earlier this year, India unveiled a state-of-the-art infrastructure designed to support AI solutions tailored to the Indian context and languages.

The IndiaAI Compute Facility is building a scalable AI computing ecosystem to support India's growing AI startup and research community. This project facilitates over 18,000 GPUs, developed through public-private partnerships. Under the US$1.2 billion-IndiaAI Mission, qualified users will get access to AI compute power at up to 40% lower costs.

The Indian government's structured approach to developing the AI and deeptech ecosystem is being enhanced by global tech companies investing in the country. Microsoft announced a US$3 billion investment in India over two years to expand its Azure cloud and AI infrastructure.

This initiative includes establishing new data centres and aims to train 10 million Indians in AI skills by 2030, marking Microsoft's largest expansion in the country to date.

While tech giants are primarily building their own AI infrastructure, these investments will ultimately strengthen the entire ecosystem.

For context, the Indian data centre industry has pulled in over US$6.5 billion in investments during the past decade, coming from a mix of private equity firms, joint ventures, and acquisitions.

With the AI wave sweeping everything under the sky, this is going to go up considerably. Currently, India’s US$10 billion data centre market is the second fastest growing market in Asia-Pacific, after Malaysia.

To sum this up in one line: India has all the tell-tale signs of a healthy AI ecosystem—from government programs and startup action to investment cash flowing in and international partnerships—which positions the country firmly on the path to becoming a global AI powerhouse.

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