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Introduction:
The market is at a nascent stage and the deep tech startups facing various challenges relating to funding, access to the right talent, and scaling their research and development operations, the Government of India came up with a transformative policy called The National Deep Tech Startup Policy (NDTSP) specifically designed to steer innovation, drive economic growth and encourage societal development. The Government of India released the draft National Deep Tech Startup Policy, 2023 (draft NDTSP) on July 31, 2023, seeking feedback from the market stakeholders till September 15, 2023. The draft aimed at addressing all those hurdles encountered by the deep tech startups and thus providing lucid solutions to all those enlisted challenges. The policy offers a comprehensive approach to revitalizing India’s deep tech landscape.
The Prime Minister's Science, Technology, and Innovation Advisory Council recommended the creation of the National Consortium to propose a comprehensive policy framework to address the needs, strengthen the Indian deep tech startup ecosystem, and bolster economic development. Diving into the actual meaning of deep technology, one derives an inference that these startups are designed to deal with early and newly developed technologies based on scientific or engineering advancements not still meant for commercial applications. Such startups are meant to provide solutions for various unexplored sectors by taking into consideration the knowledge of various disciplines. The word “deep” further connotes the depth at which such startups are explored and this depth is constantly evolving and is dependent on various factors like emerging technologies and their applicability in different sectors. The distinguishing factor between deep tech and non-deep tech startups is ownership rights in the form of Intellectual Property Rights. Further, deep tech startups are engaged in creating and owning their Intellectual Property, which non-deep tech startups do not generally possess. Various state governments have taken initiatives to promote the deep tech ecosystem eg - Telangana government has set up T-Hub and launched six frameworks on emerging technologies to produce a conducive environment for the growth of these deep tech startups. Even in the global scenarios for attracting global talent and experienced mentors, countries have implemented international startup residence programs to contribute to local deep tech founders' growth and development.
Need for the policy:
Currently, India ranks third in terms of the startup ecosystem in the world. The startup ecosystem in the country is thriving and characterized by a multitude of startups that are committed to harnessing advanced technologies to create groundbreaking solutions. As per the data mentioned in Startup India's database, there are almost 10,298 DPIIT-recognized startups classified across various sub-sectors within the larger deep tech space as of May 2023. These deep-tech startups whose business models are concentrated on high-tech innovations or scientific advancements in areas like AI/ML, big data analytics, and blockchain, are further venturing into various fields like agriculture, life sciences, chemistry, aerospace, and green energy, promising to reshape industries with their creative and novel technology solutions. The potential of these startups is immense and they are expected to contribute almost $450 to $500 billion by 2025 to the Indian economy. The majority of these startups work on a business-to-business (B2B) model and have witnessed immense growth in the last decade attracting huge funds and surges in mergers, however until recently lack of cohesive ecosystem has been observed that could have fostered the growth of these emerging technology solutions in the country. This deficiency is due to many factors, the major one being that the corporate and government Research and Development budgets are not up to par. Thus with this Policy at hand, there shall be the addition of new ventures, bolstering the ecosystem and nurturing a dynamic entrepreneurial culture within the domain of advanced scientific development.
Objectives/ Functions of the Policy - The Policy is made to fulfill various objectives such as sharing and creating facilities for product prototyping and validation to foster hardware-based deep tech startups, creating a conducive regulatory environment for innovation to thrive by using streamlined frameworks, laying out clear regulatory requirements and introducing exemptions and incentives and to attract and retain the finest human capital for superior deep tech innovations keeping equity, diversity, and inclusion as the core tenets. The Policy aims to build synergy among the various stakeholder groups along with contributing significantly to India’s GDP by boosting high-tech exports, enhancing economic competitiveness, and fostering self-reliance. It also emphasizes the improvements that the technology shall bring forth under various heads like living standards of society, water management, energy, tackling the challenges of climate change, sustainability, and national security.
Benefits of the Policy:
The benefits that can be derived from the Policy are:
- The Policy aims to include a user-led Collaborative Research and Development model for developing a Minimum Viable Product (MVP) and an assurance of a Minimum Order Quantity (MOQ).
- The Policy aims to create interlinkages with other policies existing to create a conducive ecosystem for deep tech startups along with setting up an Inter-Ministerial Deep Tech Committee which will align objectives, strategies, and implementation approaches.
- The Policy aims to promote procurement and adoption of products from deep tech startups which shall be achieved by quality-focused procurement for superior technological capabilities in critical areas.
- The Policy is developed for all the startup ecosystem players. It aims to create a symbiotic relationship between academia and entrepreneurs backed by government funding to serve as an incubator for fresh ideas and talents.
- The Policy aims to stimulate Research and Development through the establishment of a ‘fund of funds’ mechanism supported by patient capital. It provides a platform for all types of research from fundamental to applied. Innovations are also nurtured by way of various incentives like tax breaks for startups and venture capital investment.
- The policy aims at cultivating a skilled workforce by empowering individuals with competency in fields like computer sciences, engineering, and other relevant disciplines. It addresses the skill gap and encourages a new wave of innovators also attracting companies and their talented workforce.
- The Policy aims to strengthen and build a strong IP framework by establishing a ‘Single Window Platform’ that enables a Unified IP Framework customized for deep tech startups. Proper guidelines are laid down regarding the creation of design IPs leading to greater strength in respective technology competencies. Strong cyber security laws and a proper channel for tracking access and usage of confidential information are laid down. There is a strong need for India to pursue strengthening its position in global IP-related convention organizations and agenda-setting bodies and ensuring cross-border IP protection and include enabling provisions in Free Trade Agreements (FTAs) to extend protection and promotion of Indian IP in global markets.
- The Policy aims to fill the lacunae in the ecosystem of deep tech startups in the form of lack of proper funding, payment delays, and mismatch in gestation period compared to the market expectations. Thus it provides various solutions in the form of directing the Corporate Social Responsibility funds to science-based institutions or creating a platform to capture the lifecycle of government grant payments, high quantum seed funds like NIDHI PRAYAS and iDEX are even available for scale-up, which are necessary for deep tech startups.
Challenges Addressed:
When coming to the various challenges that even this particular policy exposes us to are in the form of funding limitations; resource and infrastructure constraints; business environment understanding and risks associated with frontier technologies. Briefing about them and providing alternative solutions:
- As the deep tech startups grow,there is an increased working capital requirement for funding everyday operations of the startup, i.e., accounts payable, wages, etc. as opposed to investments in tangible assets.
Solution: To address this issue, a Debt Fund should be created by SEBI Regulations, 2012, which will enable borrowing or leveraging to fulfill the deep tech startups' unique operational and working capital needs. Even a centralized platform/single window should be constituted to capture the lifecycle of government grant payments to streamline financing and improve transparency. - Deep tech startups struggle to demonstrate immediate societal impact or time to market, which affects their funding prospects. Thus, there is a lack of lucid market validation indicators such as revenue, profitability, and success metrics that hinder ascertaining the impact of venture capitalists.
Solution: Certain fiscal incentives such as tax rebates can be explored to attract domestic general partners (GPs) and limited partners (LPs) from the investor community if they allocate a certain percentage of their corpus to deep tech startups. - Deep tech startups face significant hurdles in terms of both time and financial investment, as long gestation periods pose major challenges.
Solution: To address this issue, a Technology Impact Bond (TIB) Model should be established to attract investments during the development phase of a deep tech solution. Under this model, investors will receive a financial return if the deep tech solution created by the startup achieves success. Eligible investors may include trusts, universities, and charitable institutions. - The significant impact of heavy custom duty on imports, is another major challenge faced by deep tech startups which impedes their growth and success in the long run.
Solution: The policy aims to explore measures such as custom duty exemptions or reduced customs tariffs on imported equipment, machinery, and raw materials that are vital for deep tech startups. This would eventually help minimize the cost for startups, particularly in the manufacturing of technology-intensive sectors enabling access to essential resources at competitive prices. - Deep tech startups face challenges in attracting, affording, and retaining high-quality talent. The competition for skilled professionals in the deep tech field and brain drain can drive up costs significantly and make it quite challenging for startups with already limited resources to attract and retain talent.
Solution: The possible solution could be to create incentives to retain these professionals by providing them with skill enhancement grants that covers the cost of training and upskilling for employees in deep tech startups, grants matching programs that match a portion of the salary offered by startups to qualified professionals to help bridge the salary gap and making India’s deep tech startup ecosystem more financially attractive for skilled individuals.Graduate/ postgraduate students can be encouraged to carry out internships in ranging from six months to one year in various deep tech startups. - Various domains such as childcare, fertility, nursing, etc. are often underinvested and lack innovation-driven solutions.
Solution: Therefore a dedicated grant program that is aimed at encouraging innovation in products and services that cater to the above-mentioned domains should be established. While the beneficiaries of the grant may belong to any gender, the primary objective would still be to generate a greater impact within these underinvested sectors. - Technology experts' commercial validation plays a crucial role in securing funding, but there is a lack of sufficient technical due diligence expertise for evaluating deep tech startups. This lacuna usually arises because of the complex nature of deep tech startups.
Solution: The possible and apt solution could be the incorporation of the disbursement process for providing government grants wherein a validation component committee composed of technical experts from industry, academia, research, and development would be created. - Academic institutions already have adequate equipment and scientific infrastructure that is currently underused.
Solution: Hence these institutions will be incentivised to open up their labs to startups. This shall be done by strengthening existing platforms, bringing out the incentives for both stakeholders,regular usage will keep the equipment and infrastructure functional while startups will get access to specialized equipment at a nominal fee.
Opinion:
Overall, while analyzing the NDTSP 2023 one concludes that the policy is definitely a strategic and well-thought-out one aimed at fostering the growth and sustainability of deep tech startups in India, promoting innovation, and contributing to India's economic and technological development in the long run thus fulfilling India’s goal of becoming a $5 trillion economy. The policy signifies a pathway towards a more innovation-oriented startup landscape in India and once enforced, the Policy is expected to foster better collaboration, increased investments, and more streamlined exploration of deep technologies in the country. As India strives towards a $5 trillion economy, this Policy has the complete potential to foster a culture of innovation among entrepreneurs and startup ecosystems in several states like Telangana. Deep tech is poised to be a powerful tool in addressing social challenges, from poverty alleviation to climate change mitigation and revolutionizing healthcare accessibility. The Policy aims to make the benefits of deep tech accessible to all levels of society, democratizing the potential for positive transformation. It urges individuals to be creative, take risks, and learn from failures. Deep tech necessitates an increased need for domain and skill-specific instruction through the introduction of programs/institutions that focus on specific development areas of deep tech. The Policy highlights how innovation leads to growth and prosperity. Through a strategic blend of research, collaboration, education, and focused action, India is all ready to navigate a new era of innovation by implementing this Policy.
Deep Tech startups have often faced challenges in validating their products. The doubts regarding their functionality and operational effectiveness impact their future revenue-generating abilities. Thus with this Policy, successful case studies shall be showcased and various examples of deep tech solutions that have been adopted by government entities and private firms, highlighting their benefits and return on investment shall be brought to the main arena.
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