Budget 2024: What India's tech startups want

Specific R&D funds for startups, from the government, such as iDEX (Innovations for Defence Excellence) and the defence India startup challenge are commendable says Gopichand Katragadda, founder of Bengaluru-based edge-AI startup Myelin Foundry Image: Shutterstock

In two days, Minister of Finance Niramala Sitharaman will unveil the Union government’s last budget before India goes to polls this year. The country’s tech startups are hoping the government will sharpen its focus on supporting them to develop more intellectual property within the country, which is crucial for the country’s long-term security.

In the realm of consumer electronics, Amit Khatri, co-founder of Noise, wants to see a “dedicated push to boost R&D within the country.” He would like to see measures in making the rules that apply to startups more entrepreneur-friendly and supportive of streamlined funds allocation. Programmes such as the production-linked incentive (PLI) schemes have set the stage, Khatri says, for localising components as well, fostering an environment that encourages homegrown brands.

One way we can help make consumer electronics more sustainable is by promoting re-use of devices like smartphones. And rules that define standards, certifications, warranties, and taxes are crucial for the growth of the refurbished smartphone industry in India, says Yug Bhatia, founder and CEO of ControlZ.

Renewable energy

Mayank Bindal, founder and CEO of Snap E Cabs, is hoping that the government will continue, for the next few years, the FAME II subsidy, where FAME stands for Faster Adoption and Manufacturing of Electric vehicles (EVs).

EV makers are also hoping that a proposal to reduce the Goods and Services Tax (GST) on lithium-ion batteries from 18 percent to 5 percent overall, will find favour with the government, which would make EVs more affordable, if the manufacturers pass on the benefit to customers. As India’s central and state governments push businesses and consumers to go green, EV makers want vehicle financing in the sector to be given priority sector lending status.

Continuing with the theme of sustainability, India has set itself the target of achieving 500 GW of non-fossil fuel energy by 2030 from the current capacity at 179.5 GW, points out VG Anil, CEO of ARENQ, a manufacturer of UPS, solar and EV batteries. He would like to see measures to encourage more R&D, investments in electric mobility infrastructure, and schemes that make it easier for people to use sustainable power solutions.

One major challenge that many customers face, however, is the high upfront investment, says Saurabh Marda, managing director and co-founder of Freyr Energy. Marda would like to see low-interest loans from banks for solar installations.

More tax credits, grants, and subsidies will help to make renewable energy options more viable for consumers and businesses alike, says Vaibhav Roongta, chief business officer at Rays Power Infra. Such measures will reduce the initial investment barriers and accelerate the uptake of solar, wind, and other clean energy technologies, he adds.

India imported $1.13 billion worth of solar panels in the first half of the current financial year, Roongta points out. He would like to see measures to promote indigenous development, facilitate technology transfer, and incentivise local manufacturing to make India an R&D and manufacturing hub for battery energy storage systems, often referred to as BESS in the industry.

“We stress the importance of establishing a long-term and stable regulatory framework,” he says. The framework should streamline approval processes for large-scale projects, open-access projects, implement efficient net metering policies, and ensure effective integration of renewable sources into the existing grid infrastructure, he adds.

Also read: Interim Budget 2024: What is possible and what might not work out

Drones

Last year, the government announced a plan to provide 15,000 agricultural drones free of cost to rural women under the Drone Didi initiative. This was a strong signal, says Prem Kumar Vislawath, CEO and founder of Marut Drones, which makes such drones. He too would like to see easing of regulations for both manufacturers and buyers in the sector, and of course, easy financing for drones for commercial use. Vislawath proposes 100 percent subsidy to farmers on drone training certification programmes through the Skill India initiative.

GST reductions and even waivers are a common ask across startup sectors, and drone makers are no different on this. Another common ask amongst hardware manufacturers is that the PLI scheme should be extended to component manufacturers as well.

Health care tech

The health care tech startup segment saw approximately a 55 percent drop in funding last year, says Debojyoti Dhar, co-founder and director at Leucine Rich Bio. Our focus should shift to preventive measures for common diseases rather than a predominantly curative approach, he says. Prioritising prevention not only mitigates the impact of the disease burden on the nation's economy but also aligns with the overarching goal of a healthy India, he adds. Simplified compliance rules and targeted incentives for innovative life science and health tech startups will help such ventures to contribute more to the economy, he says.

Gaurav Srivastava, co-founder and COO at HaystackAnalytics, a genomics-based diagnostics solutions provider incubated at IIT-Bombay, says India’s diagnostics segment is a highly competitive one. It is expected to grow from Rs 71,000 crore in 2021 to Rs 136,000 crore by 2026, he says. Srivastava recommends more investments in R&D, health care infrastructure enhancement, and strengthening patient safety measures, comprehensive screening and diagnostics, and expanded training courses.

India also faces the burden of having to import 80 percent the medical devices used in the country, according to Srivastava. Therefore, in this segment too, local R&D and manufacturing is imperative.

Space technologies

When the Indian space sector rules were liberalised to allow private space companies to own and operate space assets, in June 2022, it touched off significant growth in the sector, says Anirudha Sharma, CEO of space tech company Digantara. With support from the government agency IN-SPACe, Indian space tech startups have demonstrated and validated their technologies successfully, he says, adding that the next phase is about commercialisation, including selling to global customers.

Exemption from customs duties levied on companies seeking to import mission-critical materials, components, and subsystems into India, will help, he says. These spacecraft components are still not made locally, and their costs range from a few tens to hundreds of thousands of dollars.

And customs duties, which can be as high as 40 percent, makes an uphill endeavour that much steeper, he says. He would like to see service/product linked incentives to encourage both private and public companies to collaborate with Indian space startups. Simplification of rules governing the cross-border transactions that the space tech startups rely on, will also help, he says.

Also read: Budget 2024: Expect moderation in pace of government capex growth

Aerospace R&D and funding

Beyond the budget, currently, most aerospace research and technology and product development are concentrated within government agencies such as the Defence Research and Development Organisation (DRDO) and HAL. To accelerate the pace of research and product development, there is a need for early-stage involvement of startups, says Rohit Chouhan, CEO at Nabhdrishti Aerospace.

The government could establish an independent nodal agency to facilitate collaboration between DRDO labs, startups, and private industry in the aerospace sector. The absence of a clear aerospace policy prevents effective use of the world-class labs and testing facilities developed by DRDO and HAL, he says. Just as ISRO is supporting space startups with its testing and other facilities, aerospace startups can also benefit from the R&D infrastructure of DRDO and HAL, Chouhan says.

Apurwa Masook, founder and CEO of SpaceFields points out that there’s been a reduction in aerospace and defence imports over the last five years, and defence exports have increased to record levels, historically. Masook adds that India is becoming a vital junction for the global supply chain and an aerospace manufacturing hub, with increased cooperation and global partnerships amidst escalating geopolitical tensions in various regions. This presents tailwinds for dual-use tech startups. As the local industry becomes more capable with respect to critical technologies, sustained government support will be vital, he says.

This is especially so as our offset policy performance has been dismal, which has been yielding slumping returns despite various amendments. And spending on R&D has been coming down as a percentage of the total expenditure, he says. The central government’s iDEX programme is a great example of how R&D support can flow down to startups, MSMEs, and academia as well for holistic growth of the entire ecosystem. The government should also consider thematic stage-agnostic sovereign funds to de-risk the valley-of-death phase for aerospace startups and participate actively in their growth rounds, he says.

The Maharashtra Defence and Aerospace Venture Fund (MDAVF) and the Karnataka Innovation and Technology Venture Fund (KITVEN) are other examples, but there is a need for more sources to solve the funding conundrum, to unleash the full potential of the sector, he says.