Is the AI Moment for Indian Companies on the Horizon?
MUMBAI: India’s position in the artificial intelligence (AI) landscape is faltering as major tech investors like SoftBank show reduced interest in the market. Venture capital funds are increasingly writing smaller checks for startups, while the domestic stock market has been surpassed in value by Taiwan. This shift highlights India’s struggle to keep pace in the global AI race, especially as US startups like Anthropic and OpenAI prepare for billion-dollar public listings.
Lack of Competitive Edge
For the first time since 2000, Indian companies have fallen out of the top 10 constituents of the MSCI Emerging Markets Index. In contrast, Taiwan’s TSMC dominates its benchmark index, accounting for 42% of its value due to its advanced chip technology that powers leading AI models. Investors point to India’s inadequate compute capacity, an underdeveloped research ecosystem, and slow domestic consumption as key factors contributing to the country’s lag in AI development. The recent US government restrictions on foreign access to Anthropic’s advanced models further emphasize the urgency for India to enhance its AI capabilities.
Anup Jain, founding partner at BlueGreen Ventures, noted that while initiatives like Sarvam AI’s Sarvam-30B and Sarvam-105B are steps toward building sovereign AI capabilities, India remains heavily reliant on foreign-developed models.
Funding Landscape
In the March quarter, Indian AI startups raised nearly $1.5 billion, accounting for about 38% of all startup funding, according to Ashish Bhatia, founder and CEO of India Accelerator. However, this figure is modest compared to the US and China, where investment flows are significantly higher. For instance, Anthropic recently secured $65 billion in funding at a valuation of $965 billion. Pankaj Mitra, partner at Bessemer Venture Partners India, stated that India’s market depth is insufficient to support large funding rounds and high valuations, highlighting the need for deeper AI talent in fundamental research.
India currently lacks an AI-first company generating $40-50 million in annual revenue, a critical threshold for attracting substantial late-stage capital.
Need for Sovereign Compute
While tech giants like Meta and Google are establishing AI data centers in India, experts argue that more domestic contributions are necessary. Poorvi Vijay, principal at Elevation Capital, emphasized the importance of having GPU access at scale to build serious AI capabilities. Investors stress the need for India to develop sovereign compute resources and maintain control over intelligence built on local data, rather than merely focusing on data localization.
Nikunj Doshi, managing partner at Bay Capital, pointed out that global investment is flowing into established AI giants, and the perception is that India is not doing enough to develop large language models or semiconductor manufacturing.
Innovation Across the AI Stack
Despite these challenges, Indian AI founders are innovating across the stack. Investors note that many are focusing on the middleware layer, which connects foundation models to enterprise deployment. Jain remarked that India does not need to win the foundation model race, as that opportunity has passed. Instead, the focus should be on deploying AI at scale in sectors like agriculture, healthcare, climate, and financial services, where India has the potential to excel.
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