The Odyssey of India's Deep Tech Startups: Navigating a Path to Innovation
In the bustling heart of India's rapidly evolving space tech landscape, a transformative journey is currently underway. The Office of the Principal Scientific Adviser (PSA) to the Government of India has embarked on a visionary initiative—to craft a draft of the National Deep Tech Startup Policy. This policy is destined to be a game-changer, dedicated exclusively to deep-tech startups that are pushing the boundaries of innovation. Among those cheering for this groundbreaking endeavour is SIA-India, a space industry association that has long recognized the unique challenges and enormous potential of deep tech space startups.
The concept of a Draft National Deep Tech Startup Policy has emerged out of the understanding that deep tech startups operate in a league of their own. These startups delve into cutting-edge fields such as space technology, artificial intelligence, biotechnology, quantum computing, and more. Their endeavours are characterized by unique challenges and opportunities distinct from those in traditional startup domains. SIA-India has consistently advocated for such a specialized policy in various submissions and presentations, recognizing its significance in fostering an environment conducive to innovation within the space sector.
The draft policy aims to address the specific needs of deep tech startups, acknowledging their role as torchbearers of innovation, economic growth, and technological advancements. Unlike traditional startups, deep tech startups operate at the frontiers of human knowledge, pushing the boundaries of what is possible. Their work has the potential to catapult India into a leading position on the global stage, provided they receive the right support and nurturing.
As the policy document took shape, it became apparent that it revolved around four foundational pillars: Securing India's Economic Future: The policy recognized that deep tech startups had the potential to make substantial contributions to India's GDP. Their innovations had the power to boost high-tech exports, enhance economic competitiveness, and foster self-reliance.
Defining the Boundaries and Mapping the Course:
One of the primary challenges faced in crafting the policy is the need to define what constitutes a "deep tech startup." To address this, the policy proposes the formation of a working group. This group's mission is to create a definitive criterion that will help identify startups truly deserving of the "deep tech" classification. However, even as this ambitious journey is set in motion, the policy leaves a critical question unanswered: What will this working group look like, and how will its members be selected? The success of this critical initiative hinges on the impartiality and expertise of the working group, making it a topic of paramount importance. But perhaps one of the most poignant aspects of this policy journey is the call for collaboration with industry associations. These associations possessed deep insights into sector-specific challenges and opportunities. By including them in working groups and committees, policymakers could ensure that policies were finely tuned to the needs of the deep tech startup ecosystem.
Recognizing the dynamic nature of deep tech startups, the policy needs the adoption of a time-tagged strategy. This approach involves linking each policy measure to specific milestones and timelines. Such a strategy would ensure that the objectives are achieved within the stipulated time frames.
Integrating economics into the policy framework is important for conducting continuous economic impact assessments. This approach would ensure that startups generated value, stimulated growth, and flourished within the broader market economy.
Extending Startup Validity:
The policy recognized that deep tech innovations had longer gestation periods before they could be fully commercialized. To accommodate this reality, it proposed extending the startup validity period for deep tech startups by another four years. This extension would provide these startups with a better chance to validate their technology in the market and refine their strategies.
Intellectual property (IP) is the lifeblood of innovation, and the policy recognizes its central role. SIA-India seeks to further streamline IP processes, proposing several key recommendations. Firstly, efforts need to be made to align the Indian patent and IPR registration process with international standards, making it more efficient and user-friendly. Furthermore, the policy encourages deep tech startups to engage in open-source collaboration to encourage innovation and knowledge sharing. This approach would allow startups to contribute to open-source projects and release non-core technologies for the greater good of the innovation ecosystem.
SIA-India also recognizes the challenges faced by startups in assessing the market value of patents and recommends offering patent valuation support to deep tech startups. This guidance would empower startups to make strategic decisions regarding IP management. Moreover, a robust legal framework for enforcing intellectual property rights, tailored specifically to the needs of deep tech startups, is also important. This framework would include efficient mechanisms for addressing IP infringement cases and safeguarding the innovative creations of startups. Finally, the policy must explore the possibility of introducing IP insurance schemes designed to cater to the unique needs of deep tech startups. Such schemes would play a crucial role in mitigating the risks associated with IP infringement and litigation, providing startups with greater security and peace of mind as they navigate the path of innovation.
Funding the Future:
SIA-India places significant emphasis on the pivotal role of funding in the startup ecosystem, and in this regard, we offer key recommendations:
Corporate CSR Allocation: Encouraging corporations to allocate Corporate Social Responsibility (CSR) funds to deep tech startups is crucial. To incentivize this, we suggest offering tax benefits. Despite 2021's CSR guideline liberalization, CSR capital allocation to startups remains limited. Out of India's ₹20,000 crore CSR spending, less than ₹100 crore supports incubators that can fund startups. Clear, CSR-aligned guidelines are needed to enhance support.
Eased Payment Terms for Procurements: Deep tech startups often struggle to access benefits from public procurements. To address this, we recommend revising procurement policies. A key proposal is to enable partial payments at earlier project completion stages. This would ease startups' financial burdens and establish transparent guidelines for accessing procurement benefits.
Taxation Policies for Growth:
Recognizing the importance of creating a conducive environment for growth SIA-India proposes several key recommendations to ease the taxation norms:
Extended Tax Vacation: Extending the tax vacation period for deep tech startups to at least seven years is recommended. This extended runway for growth is essential given the longer timeframe typically required for deep tech startups to move from idea to revenue. Additionally, simplifying the process for startups seeking tax exemptions and removing barriers, such as tax notices during exemption applications, would streamline operations.
Deferring Minimum Alternate Tax (MAT): It is recognized that the MAT, imposed during the initial three-year tax vacation period out of seven years, could impose a financial burden, especially for deep tech startups. To address this, it is proposed to defer the MAT liability from the fourth to the fourteenth year. This adjustment would align tax policies more closely with the realities of startup financing and growth.
GST input credits: The space industry, like many deep-tech sectors, required extensive research and development efforts before technology could lead to actual sales. During this R&D phase, startups often accumulated substantial GST input credits in their initial years. To optimize and ease the financial flow of these businesses, the SIA-India deems it essential to establish a mechanism allowing startups with limited revenues to have an alternative use of this fund for their working capital.
Furthermore, recognizing the unique challenges startups face in the space industry, we suggest GST relaxation for startups engaged in large-scale government projects. Such projects often involve extended payment terms, ranging from 90 to 180 days or even staggered payments. These terms could create significant financial pressure on startups, affecting their cash flow and operational capabilities.
ESOP Issuance: Allowing startups to issue Employee Stock Ownership Plans (ESOPs) to founders should be considered. Additionally, taxation policies related to ESOPs should be revised to ensure that ESOPs are taxable on the sale of shares rather than on allotment. This approach should be available for all Startup India recognized deep tech startups without additional qualifications.
Lending Rates: Offering interest rate subsidies for startup loans was another vital aspect of the policy. This approach would make early-stage borrowing more affordable, as startups often struggled to secure loans due to the lack of collateral. In India, lending rates for startups were often up to three times higher than in developed economies, with many banks treating startup loans as subprime assets. Ensuring access to working capital and liquidity at competitive market rates could empower founders to create value in their ventures before considering equity dilution.
In conclusion, as we trace the odyssey of India's deep tech startups, from the inception of the National Deep Tech Startup Policy to its implementation, we will witness a remarkable journey of transformation and innovation. This policy is not merely a bureaucratic document; it is a visionary roadmap to promote opportunities for startups and ensure a unified set of policies across the nation. The Deep Tech Startup Policy must be followed at the state level to create a harmonized ecosystem for startups.
A copy of SIA India Submission on the Draft National Deep Tech Startup Policy (NDTSP 2023) can be downloaded from : https://www.sia-india.com/deep-tech-startup-policy-2/