Start-Ups and Innovation in Indian Defence Sector: Beginning of a New Era?

The future of defence ecosystem is technological innovation and there is surely a huge demand for such start-ups. The Author analyses the Government's initiatives in this regard.

Innovation and technology is the mainstay of an effervescent defence ecosystem of any country, and often lie down in start-ups which are the hubs for fostering them. The advantage of engaging startups stem from identifying and filling in the technological gap with innovative cost effective ideas and ability to absorb cutting edge technology in product design and manufacturing coupled with having the ability to adapt quickly to changing needs of customer. The start-ups basically spur fast-moving innovation in the defence sector. Innovation in defence can be understood as the creation of application of new/advanced products, services, processes or technologies and also adding value for application of an existing technology to a different problem or domain, aimed at enhancing military capabilities. At present, world over, especially in Israel and US, start-ups have emerged as focal point in driving innovation in military technology.

Indian Defence Sector & Start-ups

India, as on date, is lacking in the start-ups for defence technologies. At present, the start-ups in defence sector are few and those who have ventured are seen to be struggling to survive the adverse business atmosphere of the defence sector. This has resulted in absence of having a strong a vibrant Defence Industrial Base (DIB) and achieving technology self-reliance. Resultantly, India imports around 60-70 percent of defence weaponries/technologies with the country spending close to USD 6-7 billion every year making India one of the largest arms importer of defence systems. Furthermore, these defence systems purchased are vulnerable to denial of transfer of technology (ToT) and at times sanctions making India dependent. The Government sector in defence design and production worked in closed compartment and DPSUs / OFB mainly relied on “Built to Print” production. They were engaged on taking all the limelight for producing even some less critical defence items and thus, relied on imports for most of their parts and didn't look to break that cycle as they would have to go through the mammoth process of getting it re-certified. The production agencies have been spending lot of amount to fix their own manufacturing processes and not for the product upgradation and innovation or R&D programmes. The private industry was tacitly blocked till 2001 from defence production citing security concern but now is getting involved actively in defence programmes.

Thus, at the macro level, the country is still at the 'catch-up' mode. The major limitation of the present system is that the country imports technology, tries to indigenize and by the time indigenization takes place, the new one has already come. Consequently, India's focus on indigenization cannot be completed unless startups and adoption of innovation/innovative technologies are included in the supply chain.

Why Lack of Innovation?

India's position in global innovation index has been sliding year on year basis. The key reason is that India's Research & Development (R&D) investments in knowledge and innovation ecosystem are not proportionate with India's economic development. The Defence Research and Development Organization (DRDO) and certain private sector defence companies involved in defence R&D in military technology lack in innovation and are further constrained by the lack of an effective ecosystem and inadequate investment on R&D. India's spending on defence R&D is about 0.8 per cent of GDP which is well below that in major nations such as Israel, Korea, Japan, US China and Germany. Refer Graph.

Source: Q-Tech Synergy

Furthermore, in all these countries (except China), industry spends more than Government in R&D - in some countries, even three times more than Government spending. In India, while total spending in R&D is around 1 percent Government's spending is 2 to 3 times more than that of Industry's. The situation may be ascribed to the Government investing into the DRDO where a kind of lethargy has always existed with no result-oriented approach. Instead, the private sector should be encouraged to take over.

There is also disproportionate amount of money being spent on Government R&D. The country spends about 60% of the total spent on R&D in the Government sector itself whose track record of innovation is poor as compared to private sector. In all other countries, private investment into R&D exceeds those by the Government. For ex. global OEMs like SAAB, Lockheed Martin, and Boeing spend around 10-15% of their profits into their R&D segment. If Indian private manufacturers are to thrive, then the Government must encourage private investment and provide funding for R&D purpose to spur innovation.

Building Momentum in Defence Innovation

In a radical change from past practices, the Government now has stepped up its support for start-ups aiming not only in making the nation self reliant in military technology but also to innovate for the future coupled with exporting of the developed innovative defence technologies in coming years, thereby creating a vibrant domestic defence manufacturing which will not only build strategic domestic depth but also enhance economic advantage, further accentuating the job creation. The Government primarily aims at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace (D&A) by engaging Industries including MSMEs, start-ups, individual innovators, R&D institutes & academia, and provide them grants/funding and other support to carry out R&D which has good potential for future adoption for Indian defence and aerospace needs. The emerging elements of Innovation in Defence is depicted below-

Source: Q-Tech Synergy

Technology Development Fund (TDF)

Established by Ministry of Defence (MoD) and executed by DRDO with the aim to promote self-reliance in Defence Technology as a part of the 'Make in India' initiative. The scheme encourages participation of public/private industries especially MSMEs so as to create an eco-system for enhancing cutting edge technology capability for defence application. TDF is limited to the development of technologies or prototype that will form the kernel of components/assemblies, which will in turn be used to develop defence equipment/ systems/ sub-systems/platforms of product having potential use for the Services. Typically, projects under TDF will not exceed a development period of two years. The funding is provided through the provision of grants to public and private sector industry including MSMEs (up to 90% of project cost) that may work in collaboration with academic or research institutions to carry out innovation, research and development with a limit of INR 10 Crores per project. Such chosen entities will be referred to as Development Agencies (DAs). In cases where academia or research institutions are involved, their work involvement cannot exceed 40% of the total efforts required.

Certain projects have been identified for the Technology Development Fund (TDF) plan, in which the Government will fund the development of technologies or a prototype by selected companies that has to be completed within two years. Some of the upcoming projects under the scheme consist of:

  • Development of secure, customized 3G/LTE end-points (Handsets/Dongles) for a captive mobile network
  • Development of Pulse TWT for ELTA ASPJ
  • Use Of Composite Technology for Bottles Storing HP/LP Air And Other Gases (CO2, Oxygen,Nitrogen etc)
  • Development of Robotic Solution for disposal of misfire ammunition
  • Development of Indigenous Waterjet Propulsion System (WJPS)
  • Development of CW TWT for ELTA ASPJ system
  • Development of Amplidyne
  • Gun Raising, Lowering & Leveling Mechanism for L-70 Gun

Defence Innovation Fund

To encourage startups is Defence Innovation Fund (DIF) a maximum corpus of Rs 100 Crores is allocated to identify, promote and fund research and innovation in the private sector. The Scheme is proposed to be implemented through Defence Innovation Organization (DIO) which is funded by two DPSUs, namely Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL).

Innovations for Defence Excellence (iDEX)

Launched by the Government in April 2018, iDEX is funded and managed by a 'Defence Innovation Organization (DIO)'. It basically functions as the executive arm of DIO, carrying out all the required activities while DIO will provide high level policy guidance to iDEX.

Defence India Startup Challenge (DISC)

Initiative of iDEX initiative launched by MoD in partnership with 'Atal Innovation Mission (AIM)', aimed at supporting Startups/MSMEs/Innovators to create prototypes and/or commercialize products/solutions in the area of National Defence and Security. The Ministry also runs an annual 'Defence India Startup challenge' (DISC-I & DISC-II have been conducted till date) envisaged to enable calling for proposals to address specific technological needs of the Indian Defence Establishment. Applicants showing capability, intent, and promise to be able to produce functional prototypes or to productize existing technologies will be awarded up to Rs. 1.5 Crores, strictly on a milestone basis in the form of grant/equity/debt/other relevant structures. Till date, a total of 44 Winners have been shortlisted in the DISC-I and DISC-II challenge to be considered for grant of funds for prototype development and possible commercialization thereafter under Support for Prototype and Research Kickstart (in Defence) programme. Following are the technologies that will be funded by the iDEX and developed by various individuals/companies:

  • Individual Protection System
  • See Through Armour
  • Carbon Fibre Winding
  • Active Protection System
  • Secure Hardware Encryption Device
  • 4G/LTE Tactical LAN
  • Desalination/Bilge-Oily water separation
  • AI SCM & Logistics
  • Unmanned Surface/Underwater Vehicles GPS Anti Jam Device
  • Data Analytics for Air Trajectory
  • Illegal usage of Drones
  • RADAR - IQ Signal Generator
  • Remotely Piloted Airborne Vehicles
  • Individual Protection System

The Defence Ministry had also identified six partner incubators across the country including Forge, Kalyani to support these startups. AIM will provide a grant in aid of Rs 10 Cores to each incubator center for 5 years to cover the capital and operational expenditure in running the center.

Further, in Oct 2019, the Government has notified special exceptions in its defence procurement policy to promote startups and will encourage them to bid for contracts valued less than Rs 150 Crores without the burden of providing financial credentials if they can prove technical expertise. It has also made a clear distinction between startups and new entrants in the field, ruling that mid to large sized groups venturing into defence manufacturing will still need to meet financial criteria that include credit ratings, revenue and net worth. While startups will be encouraged for the smaller contracts, larger procurement plans will require companies to qualify in several parameters.

The Government has also introduced 'Make-II (Industry Funded)' program, under which the start-ups are allowed to use their own financial resources to participate in prototype development of equipment and parts and components, largely for import substitution. Successful prototyping will lead to guaranteed and time-bound order. There is also a provision for the industry, including start-ups, to submit suo moto proposals for the consideration of the government. A list of Make-II projects is available at http://makeinindiadefence.gov.in/projects/ projectlist /2 /1

Success Story

The future of defence ecosystem is technological innovation and there is surely a huge demand for such start-ups. There is definitely a momentum seen in the last two-three years with the emergence of some defence specific start-ups providing innovative solutions for our Armed Forces. certain success story in the domain are:

  • Ideaforge, a Mumbai based startup by a team of IIT graduates, developed UAV Netra that has equipped the border patrolling forces.
  • Tonbo imaging, a Bangalore based startup provides digital imaging systems for military uses. It provides strategic electronics and immersive surveillance for military applications.
  • A medical technology firm, Axio Biosolutions supplies emergency bleeding control solution to the Indian Army.
  • Adayah Aerospace, an aerospace and defence technology startup, is engaged in manufacturing electro-optics systems, control actuation systems and electromagnetic actuators for Indian Air Force and border patrolling forces.
  • Sankhyalabs, a Bangalore based startup has developed an electronic system which enables Indian Navy and Coast Guard to monitor traffic in the sea to avoid any casualties.

 Way Ahead

Technology start-ups are the new face of India and can successfully enhance India’s its technological competence. On the backdrop of this, the Defence Ministry has reserved defence modernization projects worth Rs 500 billion ($7 billion) for startups. It would also be setting up five more defence innovation hubs across the country by 2024, in addition to the existing ones at Tamil Nadu and Maharashtra. The MoD would also conduct more defence startup challenges for startups, in line with the two that were held. However, with so many start-up initiatives/policies from Government's end, it has become a bit chaotic and complex for the novices as to whom to approach and where to go. It would have been more appropriate if the Government would have synchronized the policies and schemes like maybe coming out with a comprehensive policy rather than so numerous schemes and policies. Also there is no tangible progress seen with regards to these initiatives.

The Government needs to follow/implement 'Make in India' into practice in future as well coupled with acting as a catalyst to help start-ups cross the inherent entry level barriers specific to this sector. An example should be taken from Israel which perfectly blended military technology and innovation, emerging principally from start-ups, resultantly, making the county an advanced, and high-technology defence global centre. There is also a need from the Government side to cater towards the many internal and external challenges faced by the Startups and MSMEs in order to spur fast-moving innovation in the Indian defence sector. Refer Fig. Also, there is lack of interaction between the start-ups and defence forces to understand their challenges and build the solutions which needs to be addressed at the earliest.

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