The artificial intelligence (AI) sector’s share in India’s total venture capital (VC) funding has nearly tripled in just five years, climbing from 4.5 percent in 2020 to 12.3 percent in 2025. This surge is fuelled by 188 deals worth $1.2 billion in 2025, representing a 58 percent year-on-year increase in capital allocation, according to a new report released by the India Deep Tech Alliance (IDTA) at the India AI Impact Summit on Tuesday.
While India’s broader VC market cooled to $9.9 billion in 2025, from over $10 billion the year before, AI startups have expanded their slice of the pie. Over the past decade, the sector has attracted a cumulative $12 billion across 966 transactions involving 554 companies.
This “structural re-rating”, as described by Infosys co-founder Kris Gopalakrishnan in the report’s foreword, signals India’s intent to move beyond software services to own the “critical layers” of global technology.
Several forces are driving this. Deeper research talent, maturing commercial frameworks and shorter enterprise adoption cycles have made AI companies easier to back. Meanwhile, open-source models and affordable cloud infrastructure have slashed the cost of building. And a more seasoned domestic VC community is now willing to write cheques from earlier stages.
On the demand side, enterprises across banking, financial services and insurance—along with software and digitally-native sectors—are pulling AI solutions into production at scale. The result is an ecosystem that has moved well past experimentation, with AI now firmly anchored at the centre of India’s deep tech investment story.
However, the report distinguishes India’s AI story from that seen elsewhere. Unlike the US, where AI now consumes nearly two-thirds of all venture capital, India’s investment landscape remains broad and diversified. Investors are still chasing underpenetrated consumption plays in ecommerce and D2C brands, fintech and gaming, electric vehicles, climate opportunities, health care, and deep tech verticals like space and defence.
That balance showed clearly in the funding figures for 2025. Ecommerce, including quick commerce and D2C, led all sectors with $2.4 billion in funding across 162 deals. Fintech followed with $1.9 billion across 123 deals, and enterprise software attracted $1.4 billion across 189 rounds. While AI ranks at fourth place, its rapid growth isn’t crowding out other deep tech sectors yet.
The government has stepped in to anchor this transition with the Rs1 lakh crore (approximately $12 billion) Research Development and Innovation (RDI) Fund. By providing long-term capital, the RDI Fund aims to address the high technical risks and long gestation periods that typically deter traditional venture capitalists.
Private equity is beginning to fill some of the gap. TPG Capital along with Gaja Capital, Neo Asset Management and White Oak Capital Management have committed $500 million to AI analytics firm Fractal, which is preparing for an IPO, and a further $150 million to semiconductor design firm Tessolve. Warburg Pincus has made significant investments in Indian medtech innovators, including Appasamy Associates and Meril Life Sciences.
“Success will not be measured solely in exits or valuations,” the report concludes, “but in indigenous technology platforms built, supply chains localised and diversified, strategic dependencies reduced, global standards influenced, and jobs created in high-skill manufacturing.” For India’s business ecosystem, the deep tech moment is a present execution challenge.
First Published: Feb 17, 2026, 18:48
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