India's Generative AI Startup Ecosystem Sees Over 260% Growth in H1 2024

India's generative AI (Gen AI) startup landscape has witnessed remarkable growth, with over 240 active startups reported in the first half of 2024. This surge represents a staggering increase of more than 260 per cent compared to the same period last year, when only 66 Gen AI startups were operational. The findings come from a report by the tech industry body NASSCOM, which positions India as the sixth-largest market globally in terms of its Gen AI startup ecosystem.

The rapid expansion is attributed to the launch of key Gen AI players, including Krutrim, Sarvam.ai, Nurix, and ZekoAI, among others. These startups, spanning various sectors from infrastructure to services and applications, emerged predominantly in the second half of 2023.

Key drivers of this growth include the introduction of 17 native Gen AI language models and a 4.6x increase in Gen AI services. Additionally, nearly 80 per cent of the newly established startups are focused on developing Gen AI assistants, indicating a robust trend in this area.

Despite being in the early stages of development, these startups have collectively raised over $750 million in funding since 2023, with around 75 per cent already generating revenue as of H1 2024. The report highlights that applications aimed at enhancing productivity, such as coding companions and workflow tools, have seen funding double, with 45 startups dedicated to this theme, up from 20 in H1 2023. Furthermore, the number of startups specialising in Gen AI assistants has quadrupled to over 130, with many transitioning from traditional AI chatbots to advanced Gen AI-enabled virtual assistants.

In the services sector, three primary concepts have emerged: Gen AI-as-a-Service, enterprise platforms, and data-as-a-Service, although funding remains concentrated among a few leading startups.

Sangeeta Gupta, Senior Vice President and Chief Strategy Officer at NASSCOM, stressed the transformative changes in India’s Generative AI landscape over the past year. She noted, "Innovative product launches are redefining industry standards and highlighting new focus areas such as managed large language models (LLMs) and data-driven services." Gupta stressed the importance of collaboration to unlock the full potential of Gen AI, urging a collective effort to prioritise funding for promising startups and attract top-tier AI talent.

Despite this optimistic outlook, the report also identified several growth challenges for the ecosystem. Key bottlenecks include a lack of patient capital, limited computing capacity affecting scalability, customer hesitation, and a shortage of skilled AI professionals. While concerns regarding high-quality training data and responsible AI practices have lessened since 2023, issues related to regulatory trust remain prominent.

To further accelerate growth, NASSCOM recommends that startups actively engage in experimentation and co-innovation with industry partners, as well as establish early partnerships during the MVP stage. This approach could provide access to expert AI talent and create internship opportunities for recent graduates.