Why India needs deep-tech start-ups

Deep technologies hold the key to social development as well as data security. But India’s progress in this area has been slow

One of the most common themes at tech summits held anywhere in the country is when India will see the emergence of technology giants such as Google, Tesla, and Microsoft. While TCS and Infosys have established themselves as the global powerhouses in the IT services space, there are no success stories from India when it comes to product innovation in deep technology.

Though India’s start-up ecosystem has been thriving for over a decade, the initial rush of investments has been into companies that are merely replicating successful business models from the Silicon Valley, primarily aimed at retail consumers. So we have Flipkart, which took inspiration from Amazon; Ola, which is similar to Uber; and Oyo, which started out as the Indian version of Airbnb. While all of these ventures are now well-established and have made services such as booking a cab or a hotel room more convenient, Indian entrepreneurs have been slow to invest in ideas that involve deep tech.

Change in ecosystem

The trends emerging from the National Association of Software and Services Companies (NASSCOM) report on the country’s tech start-up ecosystem indicate that things could be changing. There are two big shifts in the start-up space that are encouraging. First, start-ups are increasingly driving focus towards the business-to-business (B2B) space. And, more importantly, there has been rapid growth in the number of deep-tech start-ups. Over 18 per cent of all start-ups are now leveraging deep tech, which means there are over 1,600 such companies in India engaged in high-end engineering. In comparison, only 8 per cent of all start-ups were involved in deep tech in 2014.

There are three key reasons why India desperately needs these deep-tech start-ups to grow, not only in numbers but also in terms of size and valuation. First, solutions based on deep tech solve real-life problems in areas like healthcare, fintech, agriculture, and water management. India also has its share of challenges when it comes to food, energy, water and national security.

Then there are issues related to affordability and access to utility services, which may not be clearly understood by a multinational giant. A number of Indian start-ups are now beginning to focus on creating solutions using deep tech such as artificial intelligence, analytics, augmented reality/virtual reality and the Internet of Things, among others.

Second, deep-tech companies can offer alternative job opportunities to our engineers who were sought after by multinational tech companies but are now finding it difficult to move to research labs located out of the country due to tough visa norms. Denial rates for H-1B petitions have increased significantly, rising from 6 per cent in FY15 to 24 per cent through the third quarter of FY19 for new H-1B petitions for initial employment, according to the National Foundation for American Policy (NFAP).

To put this in perspective, between FY10 and FY15, the denial rate for initial H-1B petitions never exceeded 8 per cent, while today the rate is three times higher. India has one of the highest numbers of STEM (Science, Technology, Engineering and Mathematics) graduates and local deep-tech companies offering opportunity to work on cutting edge platforms can keep the talent within our shores.

Data localisation

Finally, Indian deep-tech companies will help secure the country’s data sovereignty. Access to data is knowledge and knowledge is power. There are many players — legitimate and unscrupulous — which want to lay their hands on this enormous power in order to either offer better services for everyone, or create havoc and make illegal profit for themselves. From the massive data breach at Facebook to the online attack using spyware Pegasus that allowed hackers to get access to communication on WhatsApp — there are many examples of how data can be misused.

Countries around the globe are thinking about how to secure citizens against such data theft. Russia, for example, is thinking about shutting down its Internet to foreign players, just like China has done. German Chancellor Angela Merkel recently urged Europe to seize control of its data from Silicon Valley tech giants, by developing its own platform to manage data and reduce reliance on the US-based companies.

Indian authorities have tried to address this concern by bringing in data localisation laws that force multi-national financial companies to keep data related to Indian users within the country. While the efficacy of such laws is yet to be proven, the concerns related to data localisation are genuine. One way of addressing it is to create an environment that enables Indian deep-tech companies to flourish.

Problem of scale

The big worry, though, is that the current approach by policymakers and investors mostly focusses on bringing more people into starting up, but there is not much support for scaling up. These technologies can have a big impact, but take a long time to reach market-ready maturity, and require a significant amount of capital to develop and scale.

According to a report by BCG, it takes four years on average to develop a technology in the biotech field (1.8 years from incorporation to first prototype and another 2.2 years to reach the market), while the comparable figure is only 2.4 years for a start-up in blockchain. Also, developing the first prototype in biotech costs an average of almost $1.3 million, but in blockchain, it costs only about $200,000. This is where large corporates and established entrepreneurs should step in to provide capital, mentorship and guidance to promising start-ups.

It is no longer enough in today’s digital world to dominate just the IT services sector. India has to find its place in the global race to achieve tech leadership. Deep-tech platform companies are at the forefront of this battle.