The Artificial Intelligence (AI) market in India is set to reach $7.8 billion by 2025 — covering hardware, software and services markets — and growing at a CAGR (compound annual growth rate) of 20.2 per cent, a new report showed on Tuesday.

The businesses in India will accelerate the adoption of both AI-centric and AI non-centric applications for the next five years, according to the International Data Corporation (IDC).

AI software segment will dominate the market and would grow from $2.8 billion in 2020 at a CAGR of 18.1 per cent by the end of 2025.

"Indian organisations plan to invest in AI to address current business scenarios across functions, such as customer service, human resources (HR), IT automation, security, recommendations, and many more," IDC India Associate Research Director, Cloud and AI, Rishu Sharma said.

"Increasing business resilience and enhancing customer retention are among the top business objectives for using AI by Indian enterprises," Sharma added.

Indian organisations cited cloud as the preferred deployment location for their AI/ML solutions. About 51 per cent of organisations are processing transactional and social media data through AI/ML solutions in the country.

"With data being one of the most crucial components in an AI/ML project, businesses use variety of databases to handle large data volumes for making real time business decisions. Organisations must focus on getting high-quality training data for AI/ML models," AI Senior Market Analyst, Swapnil Shende said.

AI applications forms the largest share of revenue for the AI software category, at more than 52 per cent in 2020.

"The major reasons for AI projects to fail includes disruptive results to current business processes and lack of follow-ups from business units," the report noted.