India’s generative AI (GenAI) startup ecosystem is growing rapidly but faces critical challenges around funding, talent, and infrastructure, according to a recent Nasscom report.
The report, which maps the momentum of GenAI startups in India in 2025, claims they have grown 3.7 times over the past year, with the total now exceeding 890 ventures. It noted a 2.8X increase in startup formation and a 1.7X rise in patents, indicating a surge in innovation. Over 83% of these startups are application-focused, building vertical AI and SaaS solutions to fast-track commercialisation.
Despite these gains, India’s GenAI funding still lags global peers.
In the first half of 2025, the ecosystem raised $990 million, marking a 30% year-on-year increase, but most of the funding remains in early stages. Late-stage investments are constrained by a risk-averse funding culture and limited infrastructure — particularly high compute costs, which have now overtaken talent shortages as the top barrier to scaling.
Arpit Mittal, founder and CEO of edtech startup SpeakX, told AIM: “What we see isn’t a mass exit; it’s more like angels putting their foot on the brake. 2024-25 rules from SEBI now ask angels to prove higher net-worth and go through extra accreditation. Many casual angels don’t want that paperwork, so they have paused investing, while the seasoned folks are simply cutting ticket sizes from ₹1-2 crore to ₹50-75 lakh per deal.”
“GenAI startups have the potential to shape the future of AI innovation for emerging markets and beyond,” said Rajesh Nambiar, president of Nasscom.
Agentic AI is emerging as a key frontier, where startups are building infrastructure, orchestration layers, and automation tools that can reshape enterprise workflows. Large tech companies worldwide are acquiring or building such capabilities, increasing competition and opportunity.
Startups are also betting big on domain-specific models for regulated sectors like BFSI, healthcare, and legal, where compliance and auditability are critical — areas where generic models often fall short. Enterprise demand is shifting from core models to orchestration tools powering agentic workflows, presenting an opportunity for Indian firms to lead in building “agent-as-a-service” stacks.
Meanwhile, a significant untapped opportunity exists for lightweight, multi-indic LLMs and voice-first AI assistants tailored for India’s mobile-first, linguistically diverse population, especially in Tier 2 and Tier 3 cities.
However, the report warns that regulatory hurdles, IP protection issues, and lack of compute-rich infrastructure are stalling the ecosystem’s maturity and slowing partnerships. The lack of production-ready talent also remains a major bottleneck.
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