Indian Deep Tech and a case for a strategic fund

Source: The post is based on an article “Indian Deep Tech and a case for a strategic fund” published in The Hindu on 15^th October 2022.

Syllabus: GS 3 – Science and Technology

Relevance: concerns with the strategic technology and ways to tackle it

News:  Government is making efforts for self-reliance in military technology, semiconductors and science-based businesses.

However, there are market concerns due to which private venture capital are not ready to invest and government spending will not be enough for the survival.

How funding has helped in other countries?

Government is the largest source of funds for Deep Tech in countries like the United States and Israel.

There are different agencies in these countries such as Defense Advanced Research Projects Agency (DARPA), etc.  through which huge funds flow into the small businesses.

But in India this bridge has not built yet due to the lack of funding.

What is the concern associated with the venture capitals to invest in the Deep Tech?

There are two problems that make investors cautious – a) lack of understanding of Deep Tech and b) the profits from Deep Tech takes time as it does not fit to standard 10-year fund return cycle.

Further, Deep Technology has dual use. For example, GPS is needed for Google Maps and it is also needed for fighter jet navigation and missile systems.

Therefore, it is not wise to burden the commercial industry alone for the strategic technology. Government should also come up with proper solutions.

What steps can government take to increase investments in the strategic technologies?

The government of India is trying to pool funds from various missions such as Semiconductor Mission, iDEX and TDF schemes. However, this would not be the apt solution for sustenance of Deep Tech.

Therefore, innovations in the corporate social responsibility (CSR) budgets and high net worth (HNI) tax breaks will induce capital flowing into strategic tech.

CSR: According to some estimates the annual CSR budget is rupees 15000 crore and some of the amount of this budget is unutilized. These unutilized CSR can be diverted from the social sector to the development of strategic technology.

Therefore, effort is required from the government and large corporations to invest in certain strategic tech startups.

HNIs: HNIs can also be offered tax incentives to make equity investment in the critical technology startups. This will provide a solution for high risk involved in the funding and replace the fear of lower short-term returns.

However, there are concerns with the misuse of funds.

How can government prevent the misuse of funds?

1. a) Investment should be limited only to Government of India-recognized startups, b) Startups should have funding or ‘acceptance of necessity’ granted from the Indian military/Ministry of Defense.

Therefore, if proper steps are taken by the government, then CSR funds and the right tax incentives to HNIs can create self-reliance in the Indian Deep Tech ecosystem.