'India needed to start yesterday': Venture capitalist urges India to act now to lead in AI

India's digital economy has expanded notably, growing from approximately 4-5% of the GDP in 2014 to 10% in recent years. The government aims to increase this share to 20-25% by 2025-2026, reflecting a strong commitment to integrating technology into the nation's economic framework. However, with the advent of artificial intelligence (AI), this gap threatens to widen once more, according to venture capitalist Hemant Mohapatra. In a series of posts on X (formerly Twitter), Mohapatra emphasised the urgency for India to reassess its approach to entrepreneurship and investment in the AI era.

Challenges in the current innovation cycle

Mohapatra highlights that emerging innovation cycles, particularly in AI, tend to favour developed economies. These cycles often require substantial capital expenditure for infrastructure development, such as the investments seen in oil, railways, and semiconductors in previous eras. Nations with strong capital markets, supportive policies, efficient supply chains, and skilled talent pools are better positioned to capitalise on these cycles. Consequently, they often dominate foundational layers of innovation, reaping benefits for decades.

The imperative for an R&D mindset

To remain competitive, Mohapatra advocates for India to cultivate a robust research and development (R&D) ecosystem. This entails fostering public-private partnerships to commercialise ideas, establishing well-funded university laboratories, and nurturing collaborations between long-term investors and visionary founders. Historically, the United States has benefited from such an ecosystem since the First World War, with China and Israel adopting similar strategies in recent decades.

Strategic recommendations for investors and founders

According to Mohapatra, both investors and founders need to take crucial steps to stay ahead of the game. For investors:

• Global Calibration – Stay informed about global technological advancements by studying market trends and academic research.
• Support De-novo Technology – Invest in nascent technologies, even at the laboratory stage, acknowledging the associated risks and longer development timelines.

For founders:

• Market Proximity – Engage with target markets from the outset, understanding that starting from India may present challenges in perception and access to top-tier talent.
• Effective Storytelling – Develop compelling narratives to attract investors, recognising that successful founders are often adept storytellers.

Current initiatives and investments

India is actively positioning itself in the global AI landscape. In March 2024, the Indian government allocated over $1.2 billion to the AI sector, focusing on increasing computing capacity with 10,000 GPUs, financing local startups, expanding AI education, and developing advanced AI models. Additionally, NXP Semiconductors in September 2024 announced its plans to invest over $1 billion in India to double its research and development efforts, aligning with the country’s ambition to become a significant player in the semiconductor industry.

Addressing the talent gap

Despite these initiatives, challenges persist. A joint report by Nasscom and Deloitte from August 2024 indicates that India’s AI talent pool is expected to grow to over 1.25 million by 2027 from around 600,000 to 650,000 currently. However, with the AI market projected to grow at a 25%-35% compound annual growth rate, a significant gap in skilled manpower is anticipated.