India’s new startup rules for deep tech | Explained

STORY SO FAR: The Department for the Promotion of Industry and Internal Trade in India (DPIIT), of the Ministry of Commerce, last week issued a notification defining what constitutes a ‘deep tech’ startup.

What are ‘deep tech’ companies?

‘Deep-tech’ is a buzzword that has over the past decade and a half, gained resonance in Europe and the United States. Though not spelt out with precision, it refers to a technology-centric startup which has high capital-intensive costs, aspires to create new products or intellectual property that exploits new scientific or engineering principles. It is a label to differentiate among startups that primarily rely on business model innovation, are app-based and rely on innovative marketing, advertising and financial wagers rather than the creation of new knowledge. Just as an IBM, or Xerox in its early years of inception would have been called a ‘technology’ company in the mid-20th century, a startup working on, say, making quantum computers or designing newer satellite or space-rockets would identify as ‘deep techs,’ rather than say another that is a clone of a Swiggy, Zomato or an Amazon. SpaceX, Anthropic, DeepMind may be categorised in present terms as deep-tech.

How does India define deep tech?

India’s official engagement with deep tech began with a 2023 policy document by the Office of the Principal Scientific Advisor. This document sees deep-tech in India as a strategic framework designed to bolster an ecosystem for startups that leverage fundamental scientific breakthroughs and engineering advancements. It recognises deep tech as a critical driver for economic growth, national security, and societal development. Deep tech, according to this document, must secure India’s economic future, help India transition to a knowledge-driven economy, achieve technological sovereignty through “Atmanirbhar Bharat,” and foster ethical innovation. The policy outlines nine thematic priority areas, including nurturing research and development, strengthening intellectual property (IP) rights, facilitating long-term funding, and creating conducive regulations and standards to help startups overcome the “Valley of Death” — the last one being a phrase to describe companies that fold because they couldn’t garner the funding to survive.

So who is a ‘deep tech’ according to the DPIIT?

A ‘startup,’ — the DPIIT says — is a company that is less than 10 years old or has a turnover less than ₹200 crore. According to the gazette notification, a deep tech company can consider itself a ‘startup’ for as long as 20 years and a turn-over of upto ₹300 crore — indicating the longer runway such companies have and the time it takes to come to fruition.

To be counted as a deep tech startup, companies must apply to the DPIIT for a certificate. The DPIIT is the final authority that determines whether a company qualifies as a startup or a deep tech startup. It will decide this based on “guidance” from an Inter-Ministerial Board of Certification, which includes a Joint Secretary, DPIIT (Convener); a representative from the Department of Science and Technology (DST); a representative from the Department of Biotechnology, according to the notification.

The notification also prohibits a defined startup from investing in activities that are not directly connected to its core mandate of working and creating new knowledge — for instance investing in real estate or “speculative assets,” or shares and securities — unless they are core to the company’s knowledge production. The deep-tech, the notification says, must spend most of its money on research and development (R&D) activities; owns or is in the process of creating significant novel intellectual property (IP) and taking steps to commercialise the same; faces extended development timelines, long gestation periods, high capital and infrastructure requirements, and carries large technical or scientific uncertainty.

What are the opportunities for deep techs in India?

These definitions are important given the Centre’s thrust on technology driven startups. The Anusandhan National Research Foundation (ANRF) is the custodian of the ₹1-lakh crore Research and Development Innovation Fund that is expected to invest, over 7 years, in emerging technology and fund research. A part of these investments, which will be through secondary fund managers such as financial institutions, will go to deep-tech startups. Science Minister, Jitendra Singh, said this week that companies with RDI funds could get financing at concessional rates of around 2-4% with tenures up to 15 years.

What is the international ecosystem for such startups?

The Draft National Deep Tech Startup Policy (NDTSP) 2023 identifies several international programs and entities that serve as models for supporting deep-tech ecosystems. Key examples of deep tech-focused incubators and support programs from outside India include: Wallonia Brussels Startup Launchpad (WSL), Belgium; U.K. Catapult, United Kingdom; the EXIST Program, Germany; Innovation Superclusters Initiative, Canada; Small Business Innovation Research (SBIR) & Small Business Technology Transfer (STTR), USA. These setups nurture a range of businesses though it is unclear if they are aimed at deep tech’s specifically.