Enablers for Defence Start-ups in India

Once upon a time, there was an Asian Dragon and an Asian Elephant, both wanting to be self-sufficient in defence technology. But they chose different paths. In Jan 2004 one went out to acquire four retired aircraft carriers for study, along with purchasing foreign aircraft carrier designs; which resulted in this Asian Dragon commissioning their first Aircraft Carrier in 2012. The Elephant, however, did not invest in any old aircraft carriers or their aircraft designs, but went on to buy out an old Russian Carrier which had to be upgraded to being sea worthy; with the refit alone costing it nearly 2 ½ times the price that was originally agreed. This Asian Elephant – India; still does not have its completely indigenously built ship, whereas the Dragon – China, is building its 2nd.

Our take – India needs to completely focus on Indigenization. India can achieve self-reliance by having control on design IPR, know-how and innovation. Establishing ‘Country Champions’ in each of the critical areas of technology for products today upgrades and future-proofs it. Since the rate of change in this area is comparatively higher, agility is critical. And, this is where engagement with the startup community will help India develop world-class products quickly.

There are four pillars around which this strategy needs to be developed-

  1. Indian Entrepreneurs must focus on Innovation & Design; and eventually prepare the business to scale globally.
  2. The Academia must encourage fundamental research in Warship Building Design and Innovation; and help build and drive models as per world class standards.
  3. Encourage Foreign Investments in Semi-Conductor Fab’s; Component Manufacturing Plants in India; ToT of Mature technologies.
  4. And most Importantly the Govt. needs to address Disabilities faced by the domestic industry and support Polices for R&D and Market Access.

The government needs to fund long-term investment in critical technology development; make existing policies more effective for R&D; reduce the Cost of Money for Industry on Interest Cost; and be open to fund risky R&D in the private and government sector. The Govt. Needs to encourage all R & D/ Technology Development Funds of organizations like DRDO, to be used via Challenge Grants, enabling the startups to be a part of the process to solve various challenges.

Market access is a big pain point for the Startups while dealing with the Govt. The Govt. needs to encourage a level playing field by removing restrictive eligibility conditions like prior experience and turnover to allow the budding domestic Industry to compete. Onerous NCNC conditions should be removed,; trials should be paid for or done post selection; and award of contract should come with strict penalties.

And finally, the government must increase the effectiveness of the “Offset Policy” by encouraging foreign OEM’s to support vendor development for discharging offsets and to appoint a Joint Secretary to address the R&D and market access issues and as well work with the industry to shape technology strategy and its implementation and help them look at the bigger picture.

With over 19,400 Tech startups serving various sectors of which 5000 have been started in 2015 alone, Startups in India are all set to reach over 1,00,000 startups, employing over 3.5 Million and creating over $500 billion in Market Value in this decade. Startups like Tonbo Imaging, Aurora Integrated Systems, Astra Microwave and many others are already helping the Government in solving the various technology problems.

With over $1.78 Trillion being spent in 2014 in Defence, America contributed $610 Billion by far ahead of rest of the world with 35% of the overall spends. The interesting factor is that Countries in Africa, Asia, Middle East and South America contributed to over 43% of Defence Spending at $765 Billion. This figure is going to keep increasing by 6-7% on an annual basis and see the Defence Spending from these countries touching over $1.10 Trillion by 2020. Of the 25 largest defence spenders in the world, 13 were from Asia and Middle East. This is where the opportunity is for India to supply to Africa, Middle East, South America and other friendly Asian Countries.

With the growing soft power of India, this opportunity is for us to leverage. Startups can play a pivotal role for India to leapfrog ahead of others in the defence industry.

Authored by Mohandas Pai & Co-Authored by Nakul Saxena