Union Budget 2025: India’s rise as a global innovation leader with deep tech in focus

India Budget: India's DeepTech ecosystem is on the brink of significant growth, driven by advancements in AI, blockchain, and other technologies. Government policies, funding opportunities, and strong public-private partnerships are essential to overcome challenges and ensure success in the upcoming Budget 2025.

Union Budget: India’s deep tech ecosystem stands at a cornerstone of explosive growth fueled by the synergy of cutting-edge science and entrepreneurial zest to craft solutions for complex global challenges. Deep Tech spans Artificial Intelligence/ Machine Learning, Internet of Things (IoT), Blockchain, Big Data & Analytics, Augmented Reality/ Virtual Reality (AR/VR), Robotics, 3D printing, Drones, and beyond.

India with its unique blend of growth of talent, ambition and government support has become a crucible for transformative ideas in Deep Tech. However, to assert global leadership amplifying advancements, clear policy definitions and strategic focus areas should be a priority for this year in Budget 2025.

Evolution of the Deep Tech Ecosystem

India’s DeepTech ecosystem, though nascent compared to the global market, shows immense growth potential. “India saw over 3,600 DeepTech start-ups, with 480 established in 2023 – a 2x increase from 2022”, according to NASSCOM’s ‘India’s DeepTech Dawn: Forging Ahead’ report. While India is ranked as the third-largest start-up ecosystem, DeepTech stands at the 6th position at a global level.

Driving Growth: Policies and Partnerships

The government of India is encouraging the growth of this ecosystem with focused initiatives, such as the Draft National DeepTech Start-up Policy, the setting up of an INR 1 lakh crore corpus for the interim budget 2024, and the recent announcement of a Rs. 1,000 crore Venture Capital Fund for the Space Sector, underscoring this commitment.

Programmes such as the Atal Innovation Mission, Niti Aayog initiatives, and Start-up India are further strengthening the ecosystem with accelerators and incubators.

Partnerships between top-tier academic institutions and corporates in AI/ML, robotics, and quantum computing are also driving significant growth. DeepTech companies with cutting-edge patented IP are becoming compelling investment opportunities.

Unlocking the Future: Overcoming Key Challenges

Access to funds is the most prominent challenge faced by Deep Tech startups. “70% of the Indian DeepTech startups, with median ticket sizes being the smallest across almost all funding stages when compared to other leading DeepTech startup ecosystems in the world”, according to Nasscom’s India's DeepTech Dawn: Forging Ahead.

The rapid pace of deep tech innovations is creating major opportunities but also posing significant challenges around infrastructure mordernisation, talent attraction and retention. The complex nature of DeepTech also underscores the critical need for robust intellectual property protection.

Developing the DeepTech ecosystem is crucial for the next generation of innovation and impact. While a growing number of investors and founders are building DeepTech companies, the long gestation period for returns on investments and the inherent business uncertainties make it challenging. Therefore, long-term and patient capital is essential for the success of these ventures.

Expectations for the Upcoming Budget 2025

The upcoming Budget 2025 presents a unique opportunity to catalyse growth in India’s DeepTech ecosystem. The expectation is to carefully address conspicuous gaps such as high capital requirements, knowledge gaps, regulatory challenges, slow market adoption, and the need for upskilling talent to support the tech ecosystem.

Recommendations to facilitate growth include:-

• Access to Capital: An important focus area of the budget should be to establish DeepTech VC funds and provide long-term government grants to meet the needs of high-risk, high-reward innovations . The efficient deployment of INR 1 Lakh crore corpus along with a streamlined process for accessibility of funds for startups and researchers should remain a priority. Introducing co-investment models and government-backed guarantees can also encourage private investments in this sector and further mitigate risks, ensuring a steady flow of capital.
• Nurturing Talent and Fostering Public-Private Synergies: Deep tech innovations will require a specialised talent pool equipped with cutting-edge skills. Advancing industry-academia- government partnerships and developing customised programs can bridge the skills gap in the market. Certifications like AI, robotics and quantum computing can increase proficiency in the workforce. Continuous upskilling of professionals to remain competitive in the evolving deep tech landscape is the need of the hour.
• Strengthening Intellectual Property Framework: Increased funding for IP enforcement will reduce instances of infringement while streamlining registration processes will make it easier for innovators to protect their creations. Establishing IP commercialisation hubs will help startups monetise their IP assets, and fostering international collaborations will provide global protection for Indian innovations.
• Increased Investment in R&D: Increased financial allocations are needed to support cutting-edge research in emerging DeepTech fields. By establishing world-class research hubs equipped with state-of-the-art facilities, we can create an environment conducive to innovation. Translational research initiatives can bridge the gap between basic research and commercial applications, ensuring that discoveries lead to market-ready solutions.
• Startup Incentives: Targeted incentives like tax benefits and subsidies can ease financial burdens on DeepTech startups, especially during their early growth stages. Extending tax holidays, providing R&D grants, and offering subsidies for patent filings and infrastructure will encourage innovation. Additionally, prioritising DeepTech startups in government procurement contracts can provide them with vital revenue streams and market validation.
• Infrastructure Modernisation: Setting up technology parks and innovation districts equipped with cutting-edge facilities can provide startups with resources. Strengthening digital and physical connectivity will also enable Indian researchers and startups to collaborate with global innovation networks.
• DeepTech-Focused Incubation Support: Expanding incubator and accelerator programs can provide Deep Tech startups with the right ecosystem support including mentorship, funds, and resources. Access to affordable prototyping and testing facilities will further enable startups to validate and refine their innovations. These measures will nurture a supportive ecosystem for early-stage ventures in the DeepTech space.
• Incentivising International Collaborations: International collaborations can accelerate growth by enabling access to global expertise and resources. Establishing bilateral research and innovation partnerships will encourage knowledge exchange while creating startup exchange programs can help Indian startups access global markets. These initiatives will position India as a hub for DeepTech innovation on the global stage.
• Regulatory Support: Simplified regulatory processes are crucial for testing and deploying new DeepTech innovations like autonomous vehicles and drones. Establishing a fast-track approval mechanism will reduce delays and encourage experimentation. Furthermore, introducing clear ethical frameworks for AI and emerging technologies will ensure that innovation is responsible, trustworthy, and aligned with societal values.
• Sustainability in DeepTech: Promoting green technologies and sustainable innovations is crucial to addressing global environmental challenges. Incentivising startups working on climate tech, renewable energy, and circular economy solutions will align India’s DeepTech sector with global sustainability goals.

This article first appeared in The Economic Times on 21 January 2024.