With the Union Budget around the corner, the deep tech sector wants the government to develop a robust grant structure, not just equity-based funding.
Other areas where the government can focus on in the upcoming budget include a pressing need for clear guidelines on IP creation, faster approval processes for AI-driven start-ups
With the Union Budget around the corner, the deep tech sector wants the government to develop a robust grant structure, not just equity-based funding.
Currently, funding has been a recurring source of problems for the sector, with the sector receiving a total of $1.15 billion in 2024 compared to $1.3 billion in 2023, as per data platform Tracxn.
“Grants can be directly managed by the government without the involvement of venture funds, which often have commercial priorities and are selective about where they invest,” said Manish Singhal, Founding Partner, pi Venture.
Venture capital fund Bharat Innovation Fund (BIF), which focuses on deep tech start-ups, has also proposed the establishment of a public-private grant initiative tailored specifically for the deep tech community, with clearly defined challenges and milestones.
This model would be akin to the grants offered by agencies like DARPA (Defense Advanced Research Projects Agency) in the USA, which have been highly effective in advancing cutting-edge technologies through targeted funding, believes Somshubhro Pal Choudhury, Partner, BIF.
Another demand of the sector has been to increase allocation by the government for research and development (R&D). While the global average R&D spending is 1.5 per cent of GDP, India's stands at just 0.7 per cent.
Experts expect a higher budget allocation for R&D and start-up support in this segment. The last budget announced a Rs 1 lakh crore corpus for deep tech for long-term loans without interest. However, experts indicate that lack of implementation of the scheme is hindering the process.
“The government had announced a Rs 1 lakh crore fund for deep tech some time ago. However, its application and operation have been limited so far. While investors show significant enthusiasm for deep tech, government support for early-stage startups in this sector has remained minimal,” said Jharna Saha, co-founder, Enlog.
The government does have policies for the sector, such as the National Deeptech Policy, which aims to facilitate funding access, strengthen intellectual property protection, and enable shared infrastructure for research and development. The draft of the policy was released for public feedback in July 2023. However, the policy has not been implemented yet. Similarly, there is the National AI Mission that aims to promote the usage of artificial intelligence (AI) for societal needs. The last budget also infused Rs 10,300 crore in the mission to develop indigenous AI capabilities and computing infrastructure. While schemes are already there, what becomes important is the implementation and easy accessibility for the same.
“There are some government schemes that are helping in certain areas, but I believe a more streamlined grant mechanism is needed. It shouldn’t take a year to secure a grant of just Rs 10 lakh—that’s not practical. The process should be made quicker and more accessible for start-ups,” added Singhal.
Other areas where the government can focus on in the upcoming budget include a pressing need for clear guidelines on IP creation, faster approval processes for AI-driven start-ups, and dedicated financial support mechanisms like tax incentives and grants, add experts.
Amid less funding in the deep tech sector, the government recently suggested a fund of fund model. India’s G20 Sherpa and former NITI Ayog CEO Amitabh Kant said at an event earlier that the government should focus on creating a fund of funds. “Due diligence cannot be carried out by the government. It should be the responsibility of VC funds. The VCs should contribute two-thirds of the funding, while the remaining one-third can be driven by a fund of funds," said Kant.
So, how can the government increase VC interest in the deeptech area? Experts believe that the government can play a pivotal role in increasing VC investments in deeptech and AI sectors by creating a favorable ecosystem.
“First, extending and refining the current tax incentives for both start-ups and investors would go a long way in making these sectors more attractive. A targeted policy that reduces the barriers to exit for investors, such as facilitating smoother IPO or acquisition processes, can increase investor confidence,” said BIF’s Choudhury.