Indian Deep Tech and a Case for a Strategic Fund : Daily Current Affairs

Date: 17/10/2022

Relevance: GS-2: Development processes and the development industry —the role of NGOs, SHGs, various groups and and other stakeholders.

Relevance: GS-3: Science and Technology- developments and their applications

Key Phrases: Indian Deep Tech, Strategic importance of Deep Tech, Innovations for Defense Excellence (iDEX), Funding in Deep Tech, India Strategic Fund

Context:

  • The Prime Minister of India is making a concerted push for self-reliance in military technology, semiconductors and science-based businesses.
  • However, government spending is not enough and typical venture capitalists are not investing.

What is Deep Tech?

  • Deep Tech or Hard Tech is a classification of organization, or a startup company, with the expressed objective of providing technology solutions based on substantial scientific or engineering challenges.
  • Deep technology is based on tangible engineering innovation or scientific advances and discoveries.
  • According to NASSCOM, Active tech start–ups that create, deploy or use advanced technology in their product or service are considered as deep-tech start–ups.
  • The most prominent deep tech fields are
    • Advanced materials.
    • Advanced manufacturing
    • Artificial intelligence.
    • Biotechnology.
    • Quantum computing.
    • Block chain, robotics, photonics and electronics.
  • Promotion of Deep Tech by the Government
    • Start-up India platform
      • The platform has been encouraging startups and integrating them with the corporate and investment community since 2016.
    • State Specific Policies
      • Over 26 States in India have a startup policy.
      • Recently, Delhi has passed Delhi Startup Policy which it hopes would turn the capital into an international startup hub.

Self-Reliance in Deep Tech is imperative

  • Our economic and national security are underpinned to certain general purpose technologies (GPTs).
  • Today there are four technology battlegrounds which are vital
    • Semiconductors.
    • 5G Technology.
    • Revolutions in biology
    • Autonomy.
  • These fields are vulnerable to military conflict, health emergencies and natural disasters.
  • These are dual use and have steep entry barriers and in some India is still at the base of the ladder.

Crucial role of funding

  • Indian startup culture is booming around ecommerce and fintech but lagging behind in the field of deep tech such as advanced materials, quantum technology.
  • The startup funding in the field of deep tech is not developed which has hampered it.
  • In the United States, Israel and North Atlantic Treaty Organization countries, the government is still the largest source of funds for Deep Tech.
  • Deep tech with cutting-edge, quantum jump in capability creates intellectual property.
  • Billions of dollars of funding flow in through agencies such as the Defense Advanced Research Projects Agency, the Directorate of Defense Research and Development etc.
  • This funding has allowed to bridge the gap between the Industry and academia in these countries but in India the problem persists.

Why is fund crunch in Deep Tech?

  • Globally, venture capital is cautious in investing in Deep Tech and the Indian venture capital ecosystem is no different.
  • The investors do not understand Deep Tech and don’t prefer to invest in such technologies because these technologies take much longer times to generate profits.
    • The Indian investor’s mentality is to churn profits within a few years that is why there is a gap between academia and the industry.
  • Deep Technology is almost always dual use.
    • For example GPS is needed for Google Maps and Uber but is also an extremely important aspect for fighter jet navigation and missile systems.
  • The western countries are shifting towards increasing the military utility of commercially available technology.
  • We need to be cognizant of the fact that strategic technology cannot become the burden of commercial industry alone.

Innovations for Defense Excellence (iDEX) Initiative:

  • iDEX is an initiative by the GoI aimed at modernization of the Defense Industry.
  • It was launched in 2018 within the framework of DIO (Defense innovation Organization).
  • iDEX aims to promote innovation and technology development in Defence and Aerospace by engaging Industries (which includes MSMEs, start-ups, individual innovators, R&D institutes & academia) and then integrate the innovations with the armed forces.
  • iDEX will provide the engaging industries with funding and other support to carry out Research & Development.
  • iDEX will be funded and managed by the Defense Innovation Organization (DIO), and will function as the executive arm of DIO.

Redirecting CSR and tax incentives to fund Deep Tech

  • Although the Government of India has been pushing for Deep Tech through Indian Semiconductor Mission, iDEX and TDF schemes, the funds are not sufficient to galvanize the Deep Tech ecosystem.
  • There are two avenues to build a movement to fund Deep Tech.
  • CSR budgets:
    • It is estimated that the annual CSR budget is ₹15,000 crore, of which a substantial portion goes unutilized.
    • Although CSR has traditionally been utilized for the social sector, growing corpus can be used for the development of strategic technology.
    • Large corporations can be incentivized to use some of their CSR budget to fund certain strategic tech startups.
  • High Net worth Individuals (HNIs):
    • HNIs can also be offered tax incentives to make equity investment in the critical technology startups that are termed as high-risk investments.
    • This would help mitigate the pinch felt with lower short-term returns.
    • The corpus of investment should be tax deductible and no more than a certain percentage of annual income.
  • Prevention of misuse of funds
    • To prevent a misuse of funds there should be a predetermined qualifying criteria.
    • The pool of investable companies must be limited to Government of India-recognized startups.
    • Startups should have funding or ‘acceptance of necessity’ granted from the Indian military/Ministry of Defense.

Way forward

  • In order to become a developed country in 25 years India needs to build world-class deep tech capabilities in certain sectors.
  • The deep tech sector can be financed through establishing an “India Strategic Fund”.
  • The corporate social responsibility (CSR) budgets and high net worth (HNI) tax breaks can be used to incentivize the sector.
  • There is a need to correctly align these incentives with the programmes launched by the Government to create an impact in the nascent Indian Deep Tech ecosystem.

Conclusion

  • India will remain a net importer of critical technology in the foreseeable future.
  • Although the Prime Minister’s vision for an Atmanirbhar Bharat has created the right momentum in the development of critical technology, it will take close to a decade or more to fructify.
  • Therefore to fulfill the vision of the Prime Minister to make India a superpower, investing in deep, critical technology is the first and utmost important step in that direction.

Source: The Hindu

Mains Question:

Q. What do you understand by the Deep Tech? Why is it critical for securing strategic interests of a country? What are the causes of underdevelopment of the Deep Tech sector in India? Suggest measures to address them. (250 words).