IndiaAI startups are reportedly resisting the central government's plan to seek equity in exchange for support under the IndiaAI mission. The Centre intends to engage in discussions with the 12 AI companies approved under the mission to construct foundational artificial intelligence (AI) models, specifically regarding the portion of their capital structure not covered by announced grants.
The government has proposed that participating companies issue Compulsory Convertible Debentures (CCDs) as part of the investment structure. This proposal has faced resistance from the startups, who are wary of ceding equity.
The IndiaAI mission, with a budget of ₹10,738 crore, aims to bolster India's AI infrastructure and position the country as a leader in AI research, development, and deployment. A significant portion of the government's ₹10,000 crore Fund of Funds Scheme (FFS) has been allocated to boost startups in AI and deep tech. This fund, managed by the Small Industries Development Bank of India (SIDBI), channels investments through Alternative Investment Funds (AIFs). These AIFs then invest in emerging startups, providing them with the financial backing needed to scale and innovate.
The "IndiaAI Startup Financing" initiative is designed to bridge funding gaps and support AI startups throughout their lifecycle, from prototyping to commercialization. It focuses on providing risk capital and fostering partnerships between government bodies, venture capitalists, and industry to enhance funding availability. The initiative also aims to ensure equitable resource distribution to startups in Tier 2 and Tier 3 cities, promoting regional inclusivity in AI innovation.
The government also intends to showcase startups that have developed AI solutions with large-scale, transformative impact at the AI Impact Summit in Delhi between February 16 and 20. The IT ministry plans to use the summit to highlight high-potential AI startups addressing critical social needs.
The government's push for AI development includes various initiatives such as building a national AI compute grid with over 38,000 GPUs to provide subsidized sovereign compute power. These initiatives align with India's goal to become a global leader in AI and deep tech.
Despite the government's efforts to support AI startups, concerns remain about potential market correction and consolidation in the AI sector. Experts suggest that startups reliant on subsidized token pricing may face margin pressure, especially as model providers increasingly compete with application startups.
The debate over equity participation highlights the complex relationship between government support and startup autonomy in the rapidly evolving AI landscape in India.
