How is India’s AI Startup Arena Faring? A Reality Check

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Last month, Union Commerce Minister Piyush Goyal voiced concern over young Indian entrepreneurs focusing efforts on food delivery and fantasy sports apps, while neighboring China invests significantly in deep-tech, electric vehicles (EVs), semiconductors, and artificial intelligence (AI).

Goyal’s remark struck a chord—but is the critique fair when it comes to India’s AI startup ecosystem?

Eklavya Gupta, Co-founder and CEO of Recur Club, a debt marketplace and fintech firm that provides business loans to startups, told MIT SMR India, “I share the spirit of Goyal’s caution—founders shouldn’t chase vanity valuations—but I’d frame it differently.”

He emphasized that what matters isn’t the label a startup carries but the size of the problem it solves and its path to sustainable economics. India, he said, needs substance over slogans—and serious AI founders already embrace this mindset.

And the numbers seem to support this view.

India’s AI startup landscape has seen dramatic shifts over the past decade, showed startup data platform Traxcn.

While 2015 and 2016 saw few new ventures, 2017 and 2019 were pivotal, with 44 and 55 startups launched, respectively. The pace peaked in 2023 with 87 new AI startups—a 190% year-on-year jump—fueled by the global buzz around generative AI.

In contrast, 2024 saw a correction with a 41.4% drop. By April this year, only four AI startups had launched, hinting at a sector moving from rapid growth to a more mature, sustainable phase.

The AI Startups Funding Scene

India’s AI startup funding landscape reflects this shift. From 2015 to 2017, funding was modest, peaking at $72.8 million in 2015 and dipping to $28.9 million in 2017. But in 2018, investor sentiment surged, with funding jumping fivefold to $148 million—an early sign of a maturing market.

By 2019, funding soared to $435 million. In 2020, it hit $265.2 million across 52 rounds—the highest deal count for any year.

Then came a surge: $530.7 million in 2021 and $788 million in 2022, riding global AI optimism. Yet, despite a record number of startups in 2023, funding fell sharply to $133.2 million, suggesting growing investor caution about sustainability and returns.

In 2024, funding rebounded modestly to $186.2 million across 34 rounds. However, as of April 2025, only $6.6 million has been raised in three rounds, signaling a general sign of caution, delayed decisions, or a reset in investor expectations.

Building AI that Understands India

For Ankush Sabharwal, founder of AI-powered chatbot firms BharatGPT.ai and CoRover.ai, the funding journey has been tough but transformative.

Speaking to MIT SMR India, Sabharwal said, “Government initiatives such as Startup India (by the Department for Promotion of Industry and Internal Trade, or DPIIT), the India AI Mission (by the ministry of electronics and information technology, or MeitY), and programs from the department of science and technology, coupled with a heightened focus on digital transformation, have created fertile ground for AI startups.”

India’s AI story is beginning to resonate globally, helped by the Atmanirbhar Bharat (self-reliant India) narrative and targeted incentives, he said.

His company CoRover’s focus on human-centric AI and language diversity led to the creation of BharatGPT—an India-trained AI built on local data.

“BharatGPT is designed to understand and respond in multiple Indian languages. It’s built on the principles of Sovereign AI and is tailored for cultural nuances, regional dialects, and linguistic subtleties that are unique to India,” he said.

The result is a conversational AI that’s not just smart but culturally intelligent—powering localized customer support, content, and education tools.

“Sovereign solutions are crucial for India. We need AI that understands our context, our languages, and our needs. This isn’t just about tech, it’s about building socially relevant innovation,” Sabharwal said.

What Investors Are Saying

Ashwin Raguraman, Co-founder and Partner at Bharat Innovation Fund, said: “We’ve been believers in AI long before Gen AI became the buzzword it is today; the arrival of Gen AI has significantly democratized AI.”

He outlined a three-tiered investment thesis:

• Foundation Models (e.g., BharatGPT, Krutrium AI, Sarvam AI) – Capital intensive and beyond early-stage funding.
• Middleware – Tools enhancing observability, fairness, and AI security.
• Applications – AI products solving real-world problems across enterprise and now consumer sectors.

But India’s AI sector, he warned, still faces hurdles such as talent crunch at scale, limited compute infrastructure (slowly improving), go-to-market issues, and sluggish domestic adoption.

“We’ve begun building world-class AI in India for global use. The next leap is building AI in India for India—and we’re just getting started,” Raguraman said.

He cited Detect, a startup from IIT Madras serving Shell and Exxon, as evidence that India can build globally competitive AI.

Recur Club’s Gupta said, “India is at an AI inflection point. We’re moving from ‘AI as a feature’ to ‘AI as foundational infrastructure.’”

He pointed to Recur Club’s AI engine, which crunches real-time financial data to offer personalized startup loans, as an example of what’s possible.

“Winning AI startups in India will rely on the same playbook: proprietary data loops, monetization clarity, and global-class product design,” Gupta said.

The Road Ahead

Traxcn data also showed geographic trends, pointing to a strong AI presence in some states and near-absence in others.

Karnataka leads with 138 AI companies—unsurprising given Bengaluru’s status as India’s Silicon Valley with its deep pool of top-tier tech talent and access to venture capital.

Maharashtra is a distant second with 76 companies, buoyed by fintechs and analytics firms in Mumbai and Pune.

Telangana (43) and Delhi (36) follow, driven by Hyderabad’s positioning as an emerging AI capital and Delhi’s institutional support and access to policymakers.

Tamil Nadu and Haryana (28 each) also show growth, with Chennai and Gurugram playing key roles. Other states—Uttar Pradesh (18), Gujarat (13), Kerala (11), and West Bengal (10)—show early-stage activity but growing momentum.

Investors like Raguraman hope that this momentum sparks a new wave of founders—from college grads to seasoned professionals seeking fresh challenges.

This moment, he said, is a call to action. Whether it’s energetic students or experienced leaders with decades in the corporate world, many are now ready to chase the next big idea.

What’s especially heartening, he added, is the pool of people deeply committed to India—citizens who want to build something meaningful and proudly say, “I did this for India.”