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.

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.

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).