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Budget 2024: India’s Deep-Tech Wants More Patient Capital

Investors and experts expect more sector-specific sops and big-ticket funding to provide impetus to the sector that is expected to drive the next wave of revolution in India’s technological journey

Budget 2024: India’s Deep-Tech Wants More Patient Capital
POSTED ON January 24, 2024 10:05 AM

As the country gears up for Budget 2024, industry watchers of India’s exploding deep-tech landscape highlight the opportunity that lies ahead of Asia's third-largest economy and put forward their asks ranging from more “patient capital” to sector-specific support initiatives.  

The Union government is betting big on deep-tech as the sector is expected to be the focus of Startup India’s second phase, where the initiative will promote innovation and indigenous R&D capabilities to secure the country’s economic future and progress towards a knowledge-driven economy.   

“As we mark #NationalStartupDay2024, we look towards #TheNextWave, which will be driven by startups in #DeepTech like AI, HPC, Quantum, Semiconductors, Web3, and more,” said Rajeev Chandrasekhar, the Minister of State for Information Technology.   

Investors believe deep-tech remained the outlier in 2023 when most other sectors saw a lull in terms of funds flowing in.  

“2023 was the most productive year for deep-tech globally and India as well,” said Dr Gopichand Katragadda president of the Institution of Engineering and Technology (IET), a global engineering body.  

Patient Funding: A Missing Link  

While the sector has been touted as the emerging one to drive the next wave of development, the lack of timely and big-ticket funds is stifling its growth potential, said experts tracking the space.  

Despite the sector witnessing the rise of companies with IdeaForge, a drone-making company, and Tata Technologies entering the public markets, challenges loom large in terms of the quantum of funding, said Raj Kumar Waghray, head of the Entrepreneurship Cell at the Foundation for Science Innovation and Development (FSID), IISc's incubation cell.  

Unlike conventional software firms, deep-tech ventures require heavy capital at the initial stages of their product development.  

“Deep-tech needs a lot of significant capital required upfront for development of things like precision manufacturing, consumables, equipment, and semiconductors chips coming in from Taiwan,” said Waghray.  

While investors acknowledge the role the government has played in supporting emerging technologies and the start-up ecosystem through its various initiatives and programmes, they anticipate exclusive schemes for deep-tech, akin to the Production-Linked Incentive (PLI) schemes rolled out over the past few years to push local manufacturing.  

“Perhaps, the government can fill the gap for funding by having a specific classification for deep-tech like they have under PLI schemes,” said Anil Joshi, managing partner of Unicorn India Ventures.  

While India has been churning out highly skilled tech talent not just for the country but also for corporate giants across the globe, the lack of big-ticket funding at the right time for deep-tech start-ups is hurting their ability to find uniquely skilled talent in a highly competitive job market.  

The emerging chip-making landscape too requires policies that foster a robust design talent ecosystem in the country that is looking to build a strong self-reliance for its semiconductor needs.  

“It is estimated that an additional 12 lakh skilled workforce is required (within the semiconductor space), of which 2.75 lakh experts are required solely for design (as per a report by the Semicon India Future Skills Talent Committee),” said Shashwath T R, co-founder and CEO of Mindgrove Technologies - a fabless semiconductor design company.  

Need for specific interventions  

IET’s Katragadda expects the government to make clear priorities, with a focus on specific areas by infusing more funding.  

Although the government has several programmes in place for funding such as the Technology Development Fund (TDF) - which was started to promote self-reliance in the defence sector, transparency of allocation of these funds is still in the infancy, said Katragadda.  

“Attention needs to be paid for transparency and audit of beneficiaries of these funds,” he said.  

He also pointed out how India’s big tech giants lag in terms of risk-taking by investing sizeable funds in deep-tech, like how Microsoft did by investing in OpenAI.  

Certain sops for investors putting their money on such emerging sectors could also go a long way, suggested Manoj Kumar Agarwal, co-founder and managing partner, Seafund.  

“For early-level capital requirement, big investors will not come in. Hence, the government should come up with specific programmes to support micro-VCs (venture capitalists) which drive investments at such stages,” said Agarwal. He added that some kind of tax incentives to those who invest in such micro-VCs could also prove helpful.  

While the Start-up India initiative’s second phase is expected to focus on deep-tech, experts ask for a less fragmented and more specific intent towards prioritising certain areas in the sector.  

“The government has shown intent with support towards deep-tech start-ups, but it should not fragment the funding. Right now, there are too many programmes. So, it should prioritise three or four areas and infuse more funding in each of these,” said Katraggada.  

In terms of academic standpoint, too, India is lagging in research related to deep-tech and other areas, he added. 

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