Innovation Grants announced for Aerospace startups

A grant of US$ 134mn (INR 1,000 crore) has been announced by the Government of India to tap into the innovative potential of defence startups in the country

March 30, 2021

The grant will look to strengthen the scope of procurement and technological innovation in the sector.

The largely monopolistic and monopsonistic sector faces challenges of scalability, IP intricacies and design constraints.

iDEX has observed that LTE/4G LAN networks, hardware encryption, foliage penetration technology are crucial PPP concerns.

Experts opine that self-reliance in the sector is a mix between enhancing domestic capabilities as well as FDI conduciveness.

In line with the launch of the iDEX (Innovations for Defence Excellence) platform at DefExpo 2018, an allocation of US$ 134mn (INR 1,000 crore) towards tapping into the innovative potential of defence startups. The fund will look to enhance procurement and promote technological innovation within the space. In 2020, the Defence Acquisition Procedure (DAP) facilitated the removal of trade barriers and provided the impetus to promote indigenous production of weapons and amenities. Experts reveal that the iDEX initiative has helped improve the sector’s startup project management capabilities through the introduction of safety indicators and success indicators. Issues pertaining to timelines, fund-management, product mix are handled through the project thereby making government-innovator interactions seamless.

Breaking the monopsony

The defence sector in India has historically been a monopsony with a limited scope of private sector and startup participation until recently. The sector is also faced with a few significant challenges that will need to be overcome in order to accomplish self-sufficiency in the entire supply chain. The Brookings Institute lists them down as follows:

(i) Challenges in large-scale manufacturing –  The per-unit costs of manufacturing arms and amenities far outweigh the benefits provided by economies of scale. This hinders the potential of the sector to embrace mass manufacturing given the high costs of R&D. 

(ii) The presence of monopolies and monopsonies – As the workings of the sector are synonymous with confidential security material, there is limited potential for non-military or non-State players to participate in the supply chain. This would mean that monopolies and monopsonies with close connections to the sector dominate the market ecosystem. 

(iii) Challenges in market entry for newcomers – Brookings Institute observes that newcomers to the sector are faced with multiple roadblocks including the presence of stringent intellectual property provisions, high capital costs as well as gaps in procurement. 

(iv) Extent of government scrutiny of private players – A significant part of the activities undertaken by private players in the sector are subject to government scrutiny given the extraordinary nature of the sector. 

(v) Lack of design provisions – The non-availability of design provisions for cost-effective systems and weaponry makes it challenging to boost widespread production.

Experts also outline that there is a need to strengthen the Defence R&D atmosphere in India such that innovators can build prototypes and take part in extensive testing processes.

Preparing the ground for startup innovation

The iDEX initiative has outlined several areas wherein startup innovation can be made possible. Some of the areas include satellite image analysis, underwater vehicles, combat machinery, foliage penetration devices, LTE/4G LAN networks and hardware encryption. The startup sector is currently contributing to the defence space through drone technology implementation and sensors. Imports are mostly restricted to heavy engineering goods. 

Each wing of the Indian Defence Forces has certain structural intricacies that will need to be reshaped in order to increase private sector and startup participation in the overall value chain. Tier-II and Tier-III MSME participation is expected to improve courtesy of the procurement reserves of US$ 404,989 (INR 3 crores) provided by the industry and a government-backed development provision of US$ 1.34mn (INR 10 crores). 

Experts observe that the following are foundational steps to effect successful  military modernisation through Private-Public Partnerships:

(i) Identification of appropriate technology and cybersecurity measures to combat defence tech obsolescence. 

(ii) Easing barriers to the commercialization of innovation.

(iii) Ensuring a steady stream of naval contract work for private sector participants and private shipyards/docks. 

(iv) Delineating proper time-frames for military contracts with private entities. 

(v) Integrating Indian entities with the global aerospace sourcing supply chain. 

Working to remove operational barriers within the purview of maintaining the requisite amount of confidentiality can encourage greater participation from the private sector and startup ecosystem. 

Achieving self-reliance

Policies like Atmanirbhar Bharat and initiatives like the Defence Production and Export Promotion Policy (DPEPP) and iDEX (Innovations for Defence Excellence) can help the sector move towards the direction of requisite self-sufficiency and scope for greater FDI. The Government of India has vibrant programmes like Digital India and Skill India that endeavor to arm youth and the general public with futuristic skill sets. As skilling in the defence sector is relatively nascent, these initiatives coupled with academic collaborations can aid the sector and the MSME space greatly.