Where is India in the generative AI race?

India's technology ecosystem is facing an uphill battle to catch up to global leaders in the field of generative AI. Despite being home to one of the world's largest startup ecosystems, the South Asian economy has yet to make a material impact in the rapidly advancing AI arena. According to analysts at Sanford C. Bernstein, "While there are over 1500 AI-based startups in India with over $4 billion of funding, India is still losing the AI innovation battle."

One of the reasons for India's dearth of AI-first startups is a skills gap among the nation's workforce. "Among its over 5 million employees, IT in India still has a high mix of low-end employees like BPO or system maintenance. While AI isn't at the level of causing disruptions, the systems are improving rapidly," warn Bernstein analysts. Dev Khare, a partner at Lightspeed Venture Partners India, recently assessed the disruptive potential of AI and warned that jobs and processes in industries such as market research, content production, legal analysis, financial analysis, and various IT services jobs could be impacted.

However, this disruption also presents an opportunity. A rapid gain in the agriculture sector, which employs over 40% of the country's workforce, is challenging, and similarly, automation in the manufacturing industry may be unnecessary due to the abundant and affordable labor force. With timely upskilling and resource optimization, the services sector stands to benefit the most. Infosys, for example, revealed last month that it is working on several generative AI projects to address specific aspects of clients' businesses. TCS, on the other hand, is exploring cross-industry solutions to automate code generation, content creation, copywriting, and marketing.

Despite the challenges, young Indian firms are stepping up to the occasion. Startups like Gan, which enables businesses to repurpose videos at scale; TrueFoundry, which assists in building ChatGPT with proprietary data; and Cube, which facilitates AI-powered customer support on social media, are among those leading the charge. The surge of interest has prompted nearly all venture funds in India to develop investment strategies in the emerging space.

However, some founders expressed concerns that these AI startups are unlikely to focus on creating their own large language models due to the lack of funding and conviction from investors to support such high compute and other infrastructure expenses. An investor cautioned that the current frenzy around AI deals somewhat echoes aspects of the crypto craze in 2021. "Everyone wants to do genAI but no one knows how/what to do. This is the crypto arms race all over again," the person said. "I doubt most Indian VCs ever really dug deep and understood crypto, because otherwise they wouldn't have made so many utterly crap investments."