India’s rapidly expanding generative AI (GenAI) startup sector is facing significant roadblocks in its journey toward global competitiveness, according to a new report by Nasscom. While the country has seen a surge in GenAI ventures over the past two years, the industry body warns that funding constraints and inadequate compute infrastructure could slow momentum.
A Rapidly Growing Sector
The Nasscom report highlights that India’s GenAI ecosystem has grown to over 180 startups in less than three years, positioning the country as one of the most vibrant emerging markets in the space. These companies are innovating across sectors including healthcare, education, retail, manufacturing, and financial services, offering products such as AI-assisted content creation tools, automated customer support systems, and domain-specific AI models.
The growth has been fuelled by increased adoption of AI in enterprise workflows, government-backed digital transformation initiatives, and a large pool of AI engineering talent. However, while India’s talent base is considered a major strength, industry leaders say it is not enough to offset systemic limitations.
Capital Gaps Impacting Early and Growth-Stage Startups
One of the most pressing concerns flagged in the report is limited access to capital, particularly in the growth stage. Early-stage GenAI startups have attracted seed funding from domestic and international investors, but scaling beyond initial pilots often requires substantial capital for infrastructure, product refinement, and market expansion.
Venture capital activity in the AI space has been strong globally, but the report notes that India’s share of AI-focused investment remains modest compared to markets like the US and China. Nasscom warns that without targeted investment support, Indian GenAI startups risk being overshadowed by global competitors with deeper funding reserves.
Compute Infrastructure as a Bottleneck
Alongside capital shortages, compute infrastructure—critical for training and deploying AI models—remains a significant hurdle. The report points out that access to high-performance GPUs and AI-optimized cloud services is both limited and expensive in India.
Most startups are dependent on global cloud providers for compute resources, leading to high operational costs and potential data sovereignty concerns. While some hyperscale cloud providers have begun setting up AI infrastructure in India, the availability is still far from sufficient to meet projected demand.
Nasscom recommends creating public-private partnerships to establish shared AI compute facilities in the country. Such infrastructure, the report says, would allow startups to access affordable training resources and accelerate innovation.
Policy Recommendations
To address these challenges, Nasscom has put forward a series of policy recommendations. These include:
- Government-backed AI Infrastructure: Establishing AI supercomputing centres accessible to startups and researchers.
- Dedicated AI Investment Funds: Setting up a national AI venture fund to support growth-stage companies.
- Incentives for AI Talent Development: Expanding AI-focused curriculum and offering tax benefits to companies investing in AI R&D.
- Data Access Frameworks: Facilitating access to high-quality datasets while ensuring strong data privacy protections.
The report emphasises that while India’s GenAI growth story is impressive, a strategic push is required to translate early successes into long-term industry leadership.
Global Context
Globally, generative AI has seen unprecedented adoption and investment since the public release of models like ChatGPT in late 2022. The US, China, and the EU have invested heavily in AI infrastructure, regulations, and research, creating a competitive environment for emerging economies like India.
Industry observers believe that India’s relatively low operational costs, combined with a deep talent pool, give it a natural advantage. However, bridging the capital and infrastructure gaps will be key to ensuring that Indian GenAI startups can scale globally without relocating their operations overseas.
Industry Reactions
Several startup founders quoted in the report expressed optimism about India’s potential but echoed concerns about sustainability without adequate support. Many called for a “National AI Mission” with focused investment in compute resources, AI safety frameworks, and incentives for enterprise adoption.
Enterprise leaders also stressed the importance of industry-academia collaboration to strengthen research capabilities and encourage innovation in specialised AI applications.
Way Forward: A Call for Ecosystem Interventions
Nasscom concludes that India’s GenAI startup ecosystem stands at a pivotal moment. With targeted interventions, it could evolve into a global hub for AI innovation. Without them, however, the country risks losing ground to better-funded, better-equipped competitors.
The coming 18–24 months will likely determine the trajectory of India’s GenAI journey—whether it remains a promising emerging player or establishes itself as a leading force in the AI-driven global economy.