Deep Tech Startups-Significance & Challenges-Explained Pointwise

Commerce Minister Piyush Goyal has recently commented that the Indian startup ecosystem is less focused on advanced technologies vis-à-vis China, has led to raising of a question about whether this gap can be closed or not? 

In this article we delve about deep tech startups, its significance , the challenges they are facing in India, the initiatives taken by the government for their growth & what could be the way forward.

What are Deep tech Startups?

Deep tech startups refer to startups based on high technology fields like Artificial intelligence, Deep learning, Robotics, Semiconductors, Biotechnology, Space, e-vehicles, etc. which aim to solve complex problems & create significant impact across various sectors.

What is the significance of Deep Tech Startups?

1. Drive innovation: Deep tech innovations form the basis for science & tech breakthroughs. They form the backbone of transformative industries. For e.g. Discovery of Penicillin by Alexander Fleming in 1928 ushered in the era of antibiotics & dramatically reduced the deaths from infections. 

2. Economic & industrial impact: Deep tech innovations like GenAI can add $1 trillion to India’s GDP by 2030. According to the former NITI Aayog CEO Amitabh Kant, the cascading effects of deep tech innovations would be critical for India to become a developed economy. Deep tech startups  are crucial for ushering in Industrial Revolution 4.0. 

3. Strategic importance: Deep technologies are not only economic drivers, but are essential for developing self-reliance (Atmanirbharta) in critical sectors like defence, energy, healthcare etc. Developing & leveraging such deep tech innovations helps in providing a technological bulwark against geopolitical uncertainties & supply chain vulnerabilities for e.g. China developed DeepSeek AI to achieve technological independence from the West, particularly in the face of US-led restrictions on advanced semiconductors exports.

4. Solving societal challenges: Development of India-centric deep technologies can help in fueling innovations to provide solutions to India-specific problems like affordable & accessible healthcare or sustainable energy, language-based AI, North-South divide etc. 

What are the challenges hindering the growth of deep tech startups in India?

1. Low R&D funding & investment: Annually, USA, UK, Germany & Japan spend >3% of their GDP on R&D, China spends 2.68%, while India spends less than 1% of its GDP. While China’s ‘Made in China 2025’ initiative poured in >$800bn in strategic sectors, India’s total technological investment from 2014-2024 estimated at $160bn is pale in comparison. This funding gap stifles the startups aiming to tackle complex problems. Moreover, the investment from the private sector remains low despite government policies like Make in India. 

2. Long gestation conundrum: Building of deep tech innovations takes time – which is usually longer than what the venture capital timelines allow in India. The venture capital landscape in India prioritizes quick return investments over deep tech startups that require patience. This myopic view, coupled with regulatory hurdles like Angel Tax (now scrapped) – stifles deep tech growth in India.  

3. India’s talent paradox: Though India produces lakhs of engineers annually, but only a fraction of engineers in India specialize in frontier technologies. Also, there is a continuous brain drain happening from India to Western countries where many Indians are driving innovations at firms like Tesla & NVIDIA or founding startups in Silicon Valley for e.g. Aravind Srinivas (Co-founder of Perplexity). 

4. Commercialization bottlenecks: Indian startups face difficulties in scaling-up from prototype to product due to long R&D cycle, weak industry-academia collaboration for tech transfer, lack of regulatory sandbox etc.

5. Regulatory & bureaucratic hurdles: Complicated IP protection & patent filing process, regulatory uncertainties in sectors like genomics, drones etc are delaying the development of deep tech startups.   

6. Dominance of USA & China: While the USA is the global leader in through companies like Nvidia, China is also very rapidly catching up. According to a WIPO report, China has filed over 38,000 generative AI patents between 2014-2023. Also, according to a study by the Australian Strategy Policy Institute, China leads globally in 57 out of 64 critical technologies. 

7. Stagnation in startup ecosystem: Though India has the 3rd largest startup ecosystem in the world with >100 unicorn startups, but majority of the startups in India are based on quick commerce & other consumer-tech innovations rather than deep tech breakthrough such as startups like OpenAI, Blue Origin, Deep Mind etc.  

8. Innovation ecosystem: India lags behind in innovation. According to the Global Innovation Index 2024, India ranks 39th while China ranks 11th. None of the Indian universities rank among global leaders in original research & innovation. 

What are the government initiatives?

1. Policy reforms in high tech sectors: Government has taken several initiatives in high tech sectors to promote innovation & private sector participation as well as to boost entrepreneurship & self-reliance for e.g. Indian Space Policy 2023, liberalized Drone Rules 2024, Draft National Deep Tech Startup Policy (NDTSP) 2023, Nuclear Energy Expansion Policy 2024 etc.

2. India Semiconductor Mission & Design-linked Incentive Scheme: Government has allocated Rs 76,000cr to build FAB capacity & design ecosystems. 

3. IndiaAI Mission: In 2024, the Union Cabinet has approved Rs 10,000cr for IndiaAI Mission – which aims to establish a comprehensive AI ecosystem. 

4. National Supercomputing Mission: Aim is to build a network of 70 high-performance computer facilities with a cumulative capacity of 45 PF (Petaflops).

5. National Quantum Mission: Aims to put India among the top 6 leading nations involved in the R&D in quantum technologies.

6. Deep Tech Fund: Government has recently announced Rs 10,000cr Deep Tech Fund of Funds as well as Rs 1000cr space tech venture capital fund with the aim to bridge the critical funding gaps & catalyzing innovations. These initiatives also send a strong signal to the private investment ecosystem that India is committed to playing the long game in advanced technology. 

7. Innovation ecosystem: Govt has introduced policies like Atal Innovation Mission, NIDHI-PRAYAS, T-Hub, iCreate etc to foster innovation & entrepreneurship at early stages for inquisitive minds. 

8. Slow but definite growth: Despite various challenges, India has seen pockets of deep tech startups success – supported by various government initiatives such as Space tech (Skyroot, Agnikul, Digantara), Robotics (Addverb, CynLR), Gene editing (CrisprBits), Quantum solutions (Qnu Labs), EVs (Ola, Ather) etc. As per NASSCOM, India’s 4000 deep tech startups attracted $1.6bn investment in 2024 – which is a 78% increase year-on-year. 

What is the way forward?

1. Increase R&D investments: USA is facilitating a $500bn AI initiative called Stargate, France is mobilizing $112bn in public & private investments towards AI development. China has set up a $138bn fund for accelerating growth in emerging technologies. Thus, India is also required to follow their steps. 

2. Increased & patient capital: Attracting more venture capital with a long-term perspective, as well as government-backed funds specifically for deep tech, is crucial. Loan guarantees and other mechanisms to reduce investor risk can help.  

3. Industry-Academia linkage: A close collaboration between India’s premier universities & research institutes like IITs, IISc and deep-tech startups is needed. For e.g. India can take inspiration from USA’s Federal institutes like Defence Advanced Research Projects Agency & NASA to encourage bold innovations. 

4. Education sector reforms: Reforms in the education sector are needed to build a framework for cutting-edge research & promoting innovation from the very beginning. 

5. IPR Ecosystem: Providing robust IPR protection & speeding up the process of patent approval can also help in promoting deep tech innovations in India. 

6. Global integration: Encourage international collaboration for joint R&D and market access. Facilitate Indian deep tech participation in global standards bodies & consortia. Promote collaboration of Indian universities & research institutes with global powerhouses in frontier technologies. 

7. Developing Specialized Talent: Focused programs to train and upskill professionals in deep tech domains, along with initiatives to attract and retain global talent, are necessary.

Conclusion:

Deep tech startups are essential to India’s technological sovereignty, economic resilience, and strategic autonomy. By promoting deep tech entrepreneurship, streamlining regulatory processes, enhancing IP protection, India can unlock the immense potential of its deep tech startups & position itself as global leader in this transformative space.