TLDR: India’s Generative AI (GenAI) startup ecosystem is experiencing explosive growth, with active startups surging from 240 in early 2024 to over 890 by mid-2025. However, a recent Nasscom report highlights a significant concern: approximately 63% of these startups are ‘pivoted,’ meaning they integrate ready-made global APIs rather than developing their own core AI models. This heavy reliance on foreign-owned digital infrastructure raises questions about India’s long-term digital sovereignty and the sustainability of its GenAI economy.
India’s Generative AI (GenAI) landscape is witnessing an unprecedented surge, with the number of active GenAI startups skyrocketing from just over 240 in early 2024 to more than 890 in the first half of 2025, according to the latest ‘India Generative AI Startups Landscape 2025’ report by Nasscom. While this rapid expansion signals a vibrant innovation hub, it also brings to light a critical underlying challenge: the foundational reliance on foreign-owned digital infrastructure.
The Nasscom report reveals that a substantial 63% of GenAI startups in India are ‘pivoted’ companies. These are existing businesses that have integrated GenAI features, predominantly by utilizing ready-made global APIs instead of investing in the development of their own core AI models from scratch. This trend is further underscored by the fact that only 5% of Indian GenAI startups are currently building their own core AI models or infrastructure, a decrease from 7% last year. This reliance, while enabling faster launches, cost-efficiency, and easier testing of ideas due to a low barrier to entry, poses potential risks to India’s digital autonomy.
The impact of global tech giants, such as OpenAI with its recent launch of GPT-5, is also a significant factor. The enhanced coding capabilities of GPT-5 could challenge India’s $283 billion IT services industry, potentially leading to a 2-3% revenue decline for Indian IT companies over the next 2-3 years, affecting both software services and customer service outsourcing sectors. The Indian IT industry, traditionally reliant on large-scale coder hiring, is already grappling with AI-driven disruptions, with AI improving productivity by 20-40% and shifting away from traditional people-based billing models. Phil Fersht, CEO of HFS Research, warned, ‘If your business still depends on armies of coders grinding through routine builds, your margins are about to get hammered,’ emphasizing the need for IT firms to overhaul delivery models within 12-18 months to focus on AI-augmented, higher-value services.
The funding environment for GenAI startups has also seen a notable shift. While early-stage investment remains stable, late-stage capital has ‘completely evaporated,’ plummeting from $115 million in 2023 to zero in both 2024 and the first half of 2025. This is attributed to investor caution surrounding the ‘uniquely risky domain of late-stage GenAI,’ which demands substantial and ongoing expenditure on computing power and research.
Despite these challenges, the broader economic outlook for AI adoption in India remains positive. Stephen Ezell, vice-president of Global Innovation Policy at the Information Technology and Innovation Foundation (ITIF), stated that AI adoption, while causing ‘churn, shift and change,’ has the potential to create 2.3 million new jobs in India by 2030 and contribute an estimated $1.2–1.5 trillion to its economy. However, Ezell also highlighted the need for India to rethink data accessibility and significantly increase its investment to achieve its AI aspirations.
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Enterprise adoption of GenAI in India is still in its nascent stages. A survey by EY indicates that 36% of Indian enterprises have budgeted and started investing in GenAI, with another 24% experimenting. However, only 15% report having GenAI workloads in production, and a mere 8% are able to fully measure and allocate AI costs. This suggests a gap between investment and tangible business value, indicating that while the potential is recognized, widespread implementation and measurable ROI are yet to be fully realized.
