AI will power the next wave of India’s tech startup evolution: National Startup Day

Artificial intelligence (AI) is not a futuristic concept for Indian startups anymore. It has emerged in the form of a foundational force reshaping how startups are built, operate, as well as scale. AI has shifted from being a niche tech to the core of business models. This is enabling entrepreneurs to solve problems with efficiency, speed, and innovation. Ranging from logistics optimization and customer engagement to language technologies, AI is amplifying global competitiveness and growth trajectory.

India’s startup ecosystem witnessing upward growth trajectory

According to reports, India has emerged as an important force in deeptech innovation. There were 3,600 deep tech startups as of 2025. This is positioning the country as one of largest deep tech ecosystems. The sector witnessed rapid growth with new deeptech ventures. These startups collectively were able to raise $1.6 billion in 2024. This marks a 78% year-over-year increase, signaling that investor confidence has increased in India’s capacity to build globally competitive tech companies. This growth is driven by a substantial talent pool and increasing R&D investment.

Other reports also paint a similar picture. A recent CCI survey found that about 67% of Indian tech startups are focused on building AI applications, showing that the majority are leveraging AI to develop tangible product offerings rather than just experimenting conceptually. The study also highlights that 76% use open-source platforms for AI development, mainly for cost and accessibility reasons. The report goes on to say that around 88% use machine learning (ML), while about 66% incorporate generative AI models (LLMs). Sectors such as healthcare, finance, retail, logistics, and e-commerce are key areas where startups are looking at promising applications of AI. According to research published by SAP India in collaboration with Dun & Bradstreet, 77% of Indian startups are investing in AI and advanced technologies such as ML, IoT, and blockchain.AI integration pervasive across sectors and industries

One of the trends in the Indian startup ecosystem is the adoption of AI across business functions. According to industry studies, more than 70% of India’s startups are integrating AI into operations such as analytics, automation, as well as customer experience. In the logistics and supply chain ecosystem, enterprises are using AI for delivery schedules and optimizing routes. Conversational AI platforms are enabling startups to offer 24/7 support while reducing operational expenditure. Startups powered by AI are improving unit economics, accelerating product development, as well as entering new markets.

“Artificial Intelligence and Generative AI have been dominant sectors. AI represents the largest deep tech segment, attracting 87% of all deep tech funding in 2024. The GenAI ecosystem has surged nearly 3.7× to 890+ startups by H1 2025, with cumulative funding reaching $990 million,” points out Rajendra Deshpande, industry expert and former CIO at Intelenet Global Services.

AI role in harnessing India’s talent and market diversity

India’s tech-savvy workforce has helped create an environment for AI adoption and innovation. Driven by data scientists, engineers, and developers, Indian startups are building solutions that are relevant and competitive. Companies are also leveraging open-source tools and technologies in order to increase agility and reduce costs. Moreover, startups are tackling challenges of linguistic diversity. For example, some startups are developing AI models that are optimized for Indian languages. They are offering voice assistance to millions of non-English speakers.

“India’s startup ecosystem is pivoting from a phase of rapid experimentation to one of strategic scaling and sovereignty. Building robust, GPU-dense infrastructure in Tier 2 cities isn’t just about cost efficiency; it’s about enabling founders to build, train, and deploy locally while competing globally. The next unicorn shouldn’t be limited by the cost of compute or data latency,” says Narendra Sen (Founder & CEO, RackBank & NeevCloud).

Indeed’s latest data show AI‐related job postings in India climbed to 11.7% in September 2025, up from 8.2% a year ago, putting India just behind Singapore in global AI demand. While overall job postings dipped 0.8% in September, demand for AI skills is rising across sectors, ranging from data & analytics and software development to engineering disciplines.

Impact on improving healthcare and public services

AI adoption in startups is making inroads in sectors with high social impact. In healthcare, predictive analytics, AI-driven diagnostics, as well as telemedicine solutions are improving access. AI innovations are highlighting the way startups are using data and machine learning to improve diagnosis and care. Similarly, collaborations between academia and startups are catalyzing innovation which goes beyond commercial objectives. They are aiding in solving systemic challenges that exist in public services.

Multiple challenges stand in the way to AI adoption

Despite rapid adoption, Indian startups face challenges viz-a-viz AI adoption. They struggle with data quality and talent shortage in building AI solutions. They are also struggling in striking a judicious balance between superficial AI branding and value-driven products. Challenges around data privacy, ethical use, and design will need attention from founders and regulators.

Has AI become a shiny toy?

Some critics say that a few startups are struggling with the shiny toy syndrome, that is, they get enamored by something trendy. This is particularly true for AI over the last two years. Companies want to solve every business problem with it. But that’s not necessarily the case with intelligent decision making. AI can help with information to get to the point, but when it comes to actually making that deterministic decision, you may need a different technique.

“Right now, far too many leaders are using AI in the most crude and unimaginative way possible—as a chainsaw to cut costs, automate roles and discard people. Layoffs are announced as “efficiency gains.” Stock prices jump. Executives congratulate themselves for being “AI-first.” And then the real costs begin to surface. Consider cases like Klarna, which publicly celebrated replacing thousands of customer service roles with AI, only to later acknowledge that customer experience had suffered and human support had to be rebuilt. This is becoming a familiar pattern: automate aggressively, hollow out capability and then, as problems surface, quietly reverse course. This is not strategic leadership. It is short-term cost engineering and opportunism masquerading as innovation. Used carelessly, AI will trigger two crises at once,” says Ravi Venkatesan, ex Microsoft India head.

AI adoption will shape the evolution of Indian startups

AI adoption in the Indian startup ecosystem is accelerating. The new technology is enabling startups to scale faster and fueling innovation across industries and sectors. As AI integrates into business strategies and models, India’s startup ecosystem will need to evolve from imitation to high-impact innovation and products.

“The future belongs to those who control their compute. By prioritizing sustainable, sovereign, and scalable digital infrastructure today, we are laying the foundation for India not just to consume AI, but to lead it,” adds Sen.

In the coming years, startups that can create a fine balance between AI, governance, and operational excellence will define the next chapter of India’s entrepreneurial story.