India’s Generative AI (GenAI) startup scene is growing at breakneck speed but most of the action is happening in one part of the value chain. According to the latest report by Nasscom, titled ‘India Generative AI Startups Landscape 2025,’ the number of active GenAI startups in the country has shot up from just over 240 in early 2024 to more than 890 in the first half of 2025.
While that sounds like a massive leap, the report points out that the bulk of these companies are building applications and not the core large language models (LLMs) that actually power the technology.
Highlighting how India’s GenAI growth story may be driven more by those layering products on top of existing AI engines than by those inventing the engines themselves.
Riding on global tech’s shoulders
The report found that 63 per cent of GenAI startups in India are “pivoted” — existing companies that have added GenAI features, often by integrating ready-made global APIs instead of building models from scratch.
“The low barrier to entry for building an application on top of a powerful, pre-existing model has made it significantly faster and more capital-efficient to launch an application-layer startup,” the report noted.
As of now, only 5 per cent of Indian GenAI startups are building their own core AI models or infrastructure, down from 7 per cent last year. While using ready-made global tech helps companies launch faster, cut costs, and test ideas more easily, the report warns this heavy dependence could be risky, with India’s GenAI economy “being built on foreign-owned digital land.”
Funding dries up for late-stage players
The funding environment has also changed. While early-stage investment remains stable, late-stage capital has “completely evaporated,” falling from $115 million in 2023 to zero in both 2024 and the first half of 2025.
The report links this to investor caution around “the uniquely risky domain of late-stage GenAI,” which requires huge and ongoing spending on computing power and research.
Niche is the new big
With too many players chasing generic AI ideas, startups are finding more success in going niche. Vertical AI tailored for industries like healthcare, legal services, and finance is gaining ground. These focused solutions have a clearer business case, better customer loyalty, and data that’s hard to copy. Standouts include Qure AI in healthtech, which raised $125 million, and legaltech firm Spotdraft, which bagged $86 million.
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