Indian Deep Tech and a case for a strategic fund

Context: In order to become a developed country in 25 years, India will need to build world-class deep tech capabilities in certain sectors.

• Government of India is making a concerted push for self-reliance in military technology, semiconductors and science-based businesses.
• However, there is a market failure where typical venture capital will not invest in this asset class, and government money is not nearly enough or is not fast enough.
• To solve this market inefficiency, India should focus on “India Strategic Fund”.
• Certain innovations in the existing corporate social responsibility (CSR) budgets and high net worth (HNI) tax breaks will incentivise capital flowing into strategic tech.

Importance of Self reliance

• Our way of life, economic and national security are underpinned to certain general purpose technologies (GPTs).
• Today, four technology battlegrounds exist, i.e. semiconductors, 5G, revolutions in biology and autonomy. Each of these is vulnerable to military conflict, health emergencies and natural disasters.
• They are areas where India is still at the base of the ladder.
• Self-reliance is not just a ‘feel good’ slogan. It is a survival imperative.

Crucial role of funding

• In the United States, Israel and North Atlantic Treaty Organization countries, government is still the largest source of funds for Deep Tech — a cutting-edge, quantum jump in capability that creates an intellectual property moat.
• This funding becomes the oxygen that small businesses survive on.
• This has allowed start-ups to emerge as a bridge between bench top prototypes of academia and production-hungry large industry. In India, this bridge remains unbuilt.
• This is because Indian Venture capital ecosystem is not willing to invest in it or even to discuss it.
• While the western rhetoric is now beginning to shift towards increasing the military utility of commercially available technology, India need to be cognisant of the fact that strategic technology cannot become the burden of commercial industry alone.

India Strategic Fund – Redirecting CSR and tax incentives

• While there are schemes like Indian Semiconductor Mission and the Ministry of Defence’s flagship iDEX and TDF schemes, depending solely on an already stretched pool of funding is not the solution to galvanise the ecosystem.

There are two avenues to build a movement of patriotic capital.

CSR budgets:

• By some estimates, the annual CSR budget is ₹15,000 crore, of which a substantial portion goes unutilised.
• CSR has traditionally been utilised for the social sector. However, this growing corpus should also be used for the development of strategic technology.
• Large corporations can be incentivised to use some of this budget to serve the strategic needs of the nation.

High Net Worth (HNI)

• HNIs can also be offered tax incentives to make equity investment in the same critical technology startups
• 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.

Staying the course

India will remain a net importer of critical technology in the foreseeable future. While the Prime Minister’s vision for an Atmanirbhar Bharat has created the right momentum, it will take close to a decade or more to fructify. If correctly aligned with the programmes launched by the Government, CSR funds and the right tax incentives to HNIs can create an almost self-fulfilling prophecy in the nascent Indian Deep Tech ecosystem.

Source: The Hindu