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Defence start-ups in India

Today, start-ups depict the growing entrepreneurial culture encouraging youth to become the leaders of tomorrow. Start-ups are increasingly achieving success in every sector-be it technology, healthcare, e-Commerce, services, etc.

However, defence sector is yet to witness the entry of budding entrepreneurs as well as investors. Lack of funding, lack of trained technical manpower, unfavourable procurement policy of government and restriction on the export of defence items etc are some of the key challenges that affect the bright prospect of starts ups.

This sector needs products with high precision, ruggedness to withstand extreme conditions, and reliability over a long period. Therefore, the enterprise should have the capability to design and manufacture these specialized products.

Over the last 70 years India has created a robust industrial base and the aim of the government is to transform India from being a net importer to a net exporter of defence equipment through its ‘Make in India’ campaign.

India is looking to leverage its position as a dominant military market in the region by ensuring that more designing and manufacturing is done in India. Given its geo-political position, operational readiness is the key word for India.

Self-reliance


The BJP government has been making efforts to make Indian self-reliant in defence sector. Many noteworthy policy directions have been issued. India has started encouraging greater participation from the private sector, including the Defence sector SMEs.

Indian Government has been proactive in its ‘Make in India’ initiative and has tweaked the policies to address the concerns of defence manufacturers and suppliers and enhanced transparency.

Change in FDI Policy, reduction in the list of items requiring Defence Industrial License (DIL), some very important amendments in existing Defence Offset Guidelines to remove bottlenecks in implementation of defence offsets, a new draft defence offset guidelines (under consideration), amendment of existing MAKE procedure (under consideration) are some of many path breaking initiatives of the government of India.

The government has created a new category under DPP 2016 named, Indigenously Designed Developed and Manufactured (IDDM) items to boost the participation of domestic companies in defence manufacturing.

Because of their innovative capabilities in niche manufacturing, higher flexibility, lower costs and the ability to learn and utilize new technologies, start ups have lot of potential. The international defence industry is a complex network of global supply chains. It is therefore important for Indian companies, particularly SMEs, to integrate themselves into global supply chains to reduce dependence on foreign supplies and also to gain a foothold in the international defence market. To emerge as a significant defence player, India needs to improve the competitiveness of its SMEs and enhance their role in the Indian defence industry.

The Indian MoD has divided the “Make” projects into two: (a) Make-I (government funded) and (b) Make-II (industry funded). While the Government would bear the cost for funding prototype development for the first category, the industry would shoulder the burden in the latter category. The government has also increased funding for prototype development from 80 to 90%, with 20% of the cost to be paid in advance.

SMEs will also have the first right to develop prototype for projects worth up to Rs 10 crore. In other words, designated projects would be offered to big industry players only when the former are not interested in taking them up.

India’s current procurement cycle is one of the most attractive markets for defence companies worldwide. In the survey of CII Defence Division members conducted by KPMG, approximately 62% of the companies believe that the Indian market is an attractive proposition for foreign defence companies.

Defence is a complex business and India has always been dependent on PSUs and government owned defence labs to build futuristic technology. With no incentives to build and commercialise core technology, SMEs have struggled to remain ahead of the time. From night vision cameras to simulators that can test military equipment, the potential and opportunities is huge.

Defence Manufacturing is one of the thrust areas towards achieving self-reliance under “Make in India”. Start-ups can play an important role to enhance innovation in defence R&D and manufacturing. Start-up is a Company that has been in existence for less than five years and with sales revenues not exceeding Rs 25 crore.

Key players

From services to great products resolving customer issues, Indian Startups and founders have proved their supremacy over other countries. With the growing soft power, Start-ups can play a pivotal role for India to leapfrog ahead of others in the defence industry.

Apart from innovation, defence start-ups will be expected to be engaged in the development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property. Defence start-ups are here to stay and they are no longer limited to military assistance and securing the borders.

The motive of a defence start-up in the beginning should not be profit making. They should rather focus on innovating new product or technology which can address the national security challenges, for which R&D is must.

Best known for their innovation and quick implementation strategy, Indian start-ups have come a long way.

Government initiatives have allowed start-ups to now enter into the defence sector which until few years back remained an exclusive club of large-cap companies.

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

Defence Research and Development Organisation (DRDO), missile manufacturer Bharat Dynamics and Indian Space Research Organisation (ISRO) together have annual budgets of around $5 billion. Their requirement of various parts and subsystems throw open opportunities for private players specialising in mission-critical components.

Few start-ups have really worked hard to strive in the defence sector and are also making Indian armed forces stronger with their new technologies:

The Noida-based firm, Time ToothTechnolgies, is making landing gears for India’s indigenous Unmanned Aerial Vehicle (UAV) called Rustom II. The DRDO drone’s landing gear will be used for steering, braking, take-off and of course landing purposes.

Entire design, development and manufacture of the landing gear was conceptualised by the 30-member company. The drone will be used for long range and high altitude surveillance by the Indian defence forces.

Aurora Integrated Systems is the lead system integrator in India, offering field tested UAS technology. Their Urban View is an unmanned aerial vehicle (UAV) that can be used for surveillance purposes in remote or arduous terrain at both day and night time, as it is equipped with standard definition cameras that also provides thermal vision. Its low noise and low visibility helps it remain out of sight.

VizExpert, a Gurgaon-based start-up on the other hand, uses 3D visualisation to map out unknown terrains for the Border Security Force. The idea is to use a 3D model equipped with various interaction devices, software, and terrain data to plan the operation on a real-time basis.

Their product GEORBIS is a 3D geospatial platform which is used by India Army for real- time operation planning, enabling faster and critical decision making. This 3D platform is equipped with various interaction devices, software and terrain data to plan the operation. The start-up helps the army to have a strong foundation with low adoption and setting up cost.

VizExperts was felicitated by the BSF for its role in enhancing border security through visual computing. Their Digital Sand Model is a revolutionary solution for operation planning, mission briefing and training, for the Indian paramilitary, police, and the armed forces. The project involves integration of online data from the field formations of the BSF, which can be visualised directly on the geospatial platform for better incident mapping and faster decision making.

Bangalore based CM Envirosystems provides Custom test Chambers.As all military equipment can’t always be tested on field, CME provides customised test chambers to test various equipment. The company has already created chambers to test equipment of project like AGNI. It also provides chambers that help to test various weapons in extreme conditions of Siachen and Thar.

Aadyah Aerospace Pvt. Ltd has received pre-series investment of Rs 13 crore ($2 million) within seven months since its launch in April 2016. The company would begin with developing three components-electro mechanical actuators, control actuation systems and electro optics systems-for missiles and launch vehicles in the initial phase. Defence establishments such as DRDO, Bharat Dynamics, ISRO are the prospective clients.

AerialAir gives recommendations to industries and businesses by carrying out data analytics on aerial data collected by the drones for its customers.

Aerialair is a group of young enthusiasts who specializes in affordable aerial imaging solution. The company offers accurate 3D land mapping services through which they provide elevation data, contour lines, 3D surface data, accurate volume measurements, CM level terrain profile & much more useful information.

Established in Bangalore, Alpha Design Technologies Pvt Ltd, is structured to offer technical support, indigenous assembly/manufacture facilities and technology integration services for a wide range of products to Indian and international organisations.

Alpha’s management, operations and production executives combine a wealth of experience in all facets of defence technology including R&D, manufacture, quality assurance, evaluation and system integration.

One start-up which has really surpassed all others and have achieved global recognition is Bangalore bases Tonbo Imaging. Thisstart-up specializes in night-vision equipment and has finally cracked the much coveted defence sector. Orders are pouring in from all over the globe as contracts worth Rs 331 crore are in the pipeline.

Global recognition

Tonbo Imaging is literally the ‘poster-boy’ of the growth story of cutting edge technology in India. Inspired by the unique imaging capability of a dragon fly’s eye, Tonbo (Japanese name for the Dragon Fly) specialises in products like advanced night-vision cameras, fire control systems, advanced weaponry through “nature-inspired technology.” Tonbo’s expertise and products are being used by CRPF, DRDO, NSG, Northern command of the Army after Uri attack, even NASA, US Navy SEALs and the US Army.

Another feather in the cap for the company is that DARPA, an advanced-technology branch of US Department of Defence is now one of their customers.

Working on cutting edge technology, Tonbo creates high end night-vision equipment, which are used in the defence sector. Their products are being used in observation platforms, reconnaissance drones, and artillery and naval weapon systems. Tonbo Imaging designs and manufactures advanced imaging and sensor systems to address critical market needs in military reconnaissance. Tonbo Imaging is founded and curated by ArvindLakshmikumar who is an established domain expert in applied imaging technologies, computer vision, robotics and intelligent systems.

Sagar Defence Engineering, which had launched the first unmanned marine surface vehicle for the Indian Navy, is looking to develop the technology further so that it can be used in extreme applications. The company, a start-up, is eager to cater to the needs of the maritime sector with its unmanned marine vehicles.

This Mumbai-based company says its rugged marine vehicle systems can be used not just by the military for ISR (intelligence, surveillance and reconnaissance), but also to study radiation levels in nuclear power plants and thermal power, and to test out submerged structures, among other things.

Planys, a Chennai-based IIT Madras-incubated company manufacturing indigenous remotely operated vehicles (ROVs) and integrating marine robotics, and  Zarrots, a Bhubaneswar-based company developing IOT (Internet of Things) devices to gather and store fuel consumption data of marine vessels in the cloud data storage system are few start-ups in the maritime sector which are waiting for the right opprotunity.

Bangalore based start-up Saankhya Labs, has built a chip Pruthvi, the size of a postage stamp that functions as a software-defined radio (SDR). SDR is a radio communication system where components that have been typically implemented using hardware are instead replaced by software.

Software radios have significant utility for the military which must serve a wide variety of changing radio protocols in real time. Pruthvi can also integrate new technology with old legacy equipment. This reduces cost, power consumption and size of components on a personal computer or embedded system. Pruthvi has so far been used to power satellite phones, drones and satellite receiver for the Indian Space Research Organisation’s communication satellite.

Another start-up which has attracted lot of attention is the IdeaForge, a 100-people, Mumbai-based venture that was started in 2008 by three IIT-Bombay graduates.

IdeaForge’s flagship product is Netra, which it developed with the Defence Research and Development Organization. IdeaForge is among a growing number of innovative ventures that are catering to India’s defence forces. Even the Indian Army has depended heavily on their UAV for border surveillance specially post Pathankot cross border firing incident.

AxioBiosolutions,  Bengaluru makes a sponge-like bandage that helps in blood clotting when pressed against a cut or a wound in the body. The product has been purchased by over 70 battalions of the Indian Army. AxioBiosolutions, a company backed by Accel Partners and IDG Ventures, benefits because there are only four or five providers of hemostats to defence forces and their products are far costlier (a US import previously cost Rs 13,000-14,000 per pack compared with Rs 2,000 from Axio). The supply of the hemostats was also sharply regulated. The shortage was acutely felt by the forces many times.

Over the past couple of years, the company has made big progress, signing up with several army units, and paramilitary forces such as the BSF and the Indo-Tibetan Border Police .

New Delhi-based Omnipresent Robot Technologies has designed, developed and supplied indigenous unmanned robots to Indian defence. These robots can go into difficult terrains and send back audio and video data wirelessly. They can also detect explosive material.Omnipresent is also developing a navigational module for ISRO’s Chandrayaan-2 moon mission. Omnipresent has developed UAVs and river cleaning robots, apart from robots for home and health care. Its clients include the Center for Artificial Intelligence and Robotics (CAIR), ISRO, and Defence Terrain research laboratory.

‘Make in India’ initiative has enabled private sector players even to acquire DRDO technologies and manufacture for wider applications and customer base. Even the scientists at DRDO believes that it is easier to work with smaller companies.

They are willing to listen to requirements and work accordingly. There is a lot of hunger within them and that reflects in their work as well. Therefore it is a win-win for both sides because the DRDO provides start-ups with a control station and top-quality resources to work with. Gurgaon-based Robotics company Hi-tech Robotics Systemz, and Pune-based Beta Control are some of the other start-ups that the DRDO collaborates with.

Presently, there are around 250 companies working in the electronics system design and manufacturing (ESDM) in India almost 40 per cent of which are global companies. The sector employs around 2 million employees. The industry body expects that over the next five years, the sector would create around 27 million job opportunities and by that time the country is expected to be self-reliant in electronics goods demand.

Demand from key segments and Production ramp-ups are expected to create an additional investment of $15 billion in the electronics system design and manufacturing (ESDM) sector. The industry also expects that with the focus on domestic manufacturing and demand from key sectors will create new avenues for the sector and boost the market to become a whopping $400 billion by 2025. For examples, even in mission critical segments like space research, the requirement of electronics and semiconductor are mostly met through imports which the Indian space research organization (ISRO) is now looking at indigenizing.

Cracking the defence sector, where only large contractors and billion dollar companies venture, is indeed a big achievement. Companies like Tonbo Imaging has successfully demonstrated that Indian start-ups have no boundary left now.

Policy reforms

Defence start-ups have got huge potential however the lack of investment and funding remains a key challenge. Further the bureaucratic mindset and lack of level playing field is also big problem.

Indian government needs to encourage the SMEs by offering few incentives and equal opportunities.

India can learn few critical things from the success of start-ups in other regional countries.

For example, in 2015 South Korea’s military procurement agency, the Defense Acquisition Program Administration (DAPA), established a special committee to technically assist a selected group of small and medium enterprises seeking to expand in defence. The committee comprising subject-matter experts not only provides consultancy but also assistance related to marketing, bidding, and administrative procedures to the SMEs.

Japan is also largely self-sufficient, with more than 90% of its requirements for military products being met by suppliers from within the country, including small and medium enterprises.

Even Israel is regarded as the ‘Startup Nation’. It has the highest concentration of start-ups outside of Silicon Valley. Israel also boasts the most companies listed on the NASDAQ of any foreign nation. Fewer than 1% of start-ups in the United States manage to scale and expand, compared to 4% of new businesses in Israel. This success rate is, in large part, attributed to Israel’s seamless relationship between mandatory military training and an evolving culture of independence that encourages a desire to disrupt existing industries and redefine the modern marketplace.

Many countries have done wonders in their defence sector, primarily because they have a vibrant small and medium defence technology enterprise sector. United States, Israel and China encourages companies with promising technologies by giving them grant and other infrastructural support.

Though policy reforms are a clear indication of the Indian government’s earnest desire to promote India’s aerospace and defence industry, a lot needs to be taken care of.

Industry players, on their part, have appreciated these moves, but their main contention is that if the government really wishes to promote the defence sector, they need to revamp some of the tax and regulatory policies applicable to the sector. This has been and remains a key demand of the industry.

Funding remains a key challenge for any start-up that plans to raise funding for their vision. Many hurdles are encountered.

Further there is low preference to domestic players, especially the start-ups. However, there are instances where the solution sold by a foreign company in India has several components manufactured out of India by these start-ups.  For instance, some defence companies based out of Israel are getting several of their key components manufactured out of India and then sells the entire product to defence agencies in the country.

Also domestic manufacturers have to adhere to the country’s strict tax policies; on the other hand, taxation rules are much more simplified for foreign players.

Defence start-ups are not that well-known in India, but there is definitely a scope for it.

Since the Government focuses on indigenisation in defence, the defence SMEs should be considered for reduction in corporate tax. SMEs should be asked to submit yearly report towards their contribution to defence manufacturing in lieu of the tax incentives. Also, additional incentive for Defence R&D for SMEs should be announced.

The Government should consider offering tax incentives for private sector at par with PSUs in defence for at least five year period to boost defence indigenisation.

The government needs to fund long-term investment in critical technology development; make existing policies more effective for R&D. The government should encourage all R & D/ Technology Development Funds of organizations like DRDO, to be used via Challenge Grants, enabling the start-ups to be a part of the process to solve various challenges. Government can ask DRDO to provide a platform for registered start-ups to use their labs /infrastructure for product development, bringing new innovations to market, and help start-ups partner with established players to sustain their business operations in the open market.

The government 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.

India really needs a defence industrial base and not just a military industrial complex, for which promoting start-ups is the first key step.