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Chance To Join The Big Party

A massive opportunity stares at startups in the defence sector and the right kind of support from the government and private investors could give them the impetus they need

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Startups in the defence sector have a goldmine to dig. The total defence budget for 2016-17 is Rs 2.49 lakh crore, of which electronics forms a major component. Electronics alone is expected to generate $72-billion worth of market opportunities for startups over the next 10 years. The government’s Make in India initiative, as part of which several policies have been rolled out over the past two years, has in addition given a special impetus to the private sector to invest in research, design, and development.

“There are many opportunities for startups to tap some of the need for small-scale equipment for training and use in counter insurgency and in anti-terrorism operations from bullet proof jackets to radio sets, vision devices and simulators. The Armed Forces and police forces are looking at affordable options that guarantee quality. They are open to weaning away from the defence PSUs, and this is where the opportunity lies,” says Maroof Raza, strategic affairs expert.

The Defence Procurement Procedure 2016 (DPP) effective 1 April 2016 has introduced a key new category called Indigenous Designed Developed and Manufactured (IDDM), which has been given the highest priority. The category refers to products procured from Indian vendors that have either been designed, developed and manufactured with at least 40 per cent indigenous content, or products that have 60 per cent indigenous content on a cost basis, but have not been designed and developed indigenously.

At present, India is the largest importer of defence equipment and many of its defence needs are met through imports. “But, the Indian government’s vision is to develop a strong self-reliant domestic industry in the defence sector with substantial participation from the private sector, including MSMEs and startups to reverse the trend of imports,” says S. K. Sharma, chairman and managing director of Bharat Electronics. “It is a great opportunity for MSMEs/startups to leverage their capabilities for the development of innovative products and technologies required for meeting the emerging needs of the Indian defence forces,” he added.

In fact, defence startups are right here among us, perhaps a bit overshadowed by the more talked-about players in the e-commerce sector, but they are silently working their way up. For instance, VizExperts, a Gurgaon-based technology startup in the visual computing field founded by Praveen Bhaniramka, has been helping organisations “enhance situational awareness” and take well informed decisions from data.

Bootstrapped with an initial investment of Rs 2 crore, Bhaniramka’s venture targets defence homeland — police, paramilitary and organisations like Defence Research & Development Organisation (DRDO) and Indian Space Research organisation (ISRO). It has products in domains like 3D GIS, simulation, 3D video wall processing and virtual reality.

Then, there are more mature companies like Centum Electronics, which is specifically targeting the Indian strategic electronics market, now growing at a CAGR (compound annual growth rate) of about 18 per cent. “We design and manufacture electronic systems and subsystems for missiles, radars, electronic warfare, avionics and communications. With our strategic focus on indigenisation of products that are currently being imported, we have developed technologies and processes which are unique in the country,” says Apparao Mallavarapu, CMD, Centum Electronics.

Hyderabad-based Zen Technologies develops training simulators for weapons and allied defence equipment. The company went public in 2000 and over the years, Zen has developed expertise in designing, developing and manufacturing various types of simulators. Zen believes that its products that are developed in-house, not only meet all qualitative standards but are also cost-effective.

In July this year, Zen received an export order worth Rs 30 crore from the Egyptian ministry of defence — its biggest export order till date. The Ministry of Defence, Egypt has chosen the company to provide a range of training equipment, including smart target systems. The company has supplied over 450 simulators to over 100 customers across defence, services, state police forces, paramilitary forces and Navy.

Bengaluru-based Alpha Design Technologies offers technical support, indigenous assembly/manufacturing facilities and technology integration services for a wide range of products to Indian and international organisations. It specialises in laser aiming systems, thermal imagers and fire control systems, tactical communication, navigation systems and simulators, among others. Early this year, Adani Aero Defence Systems & Technologies, a fully owned subsidiary of Adani Enterprises, signed a “statement of intent” with Alpha Design Technologies to work together in the field of unmanned Aircraft Systems (UAS) in India.

Founded in 2007 by Parag Naik, Hemant Mallapur and Vishwakumara Kayargadde, Saankhya Labs is another Bengaluru-based startup. It has built a chip called ‘Pruthvi’ that functions as a software-defined radio (SDR). Pruthvi has so far been used to power satellite communication, drones, ultra-HD set-top-boxes and video surveillance applications. The SDRs, which deal with changing radio protocols in real time, also have significant utility in the military.

Scope For Growth

Startups can play a pivotal role in helping India leapfrog ahead of others in defence production. Given the rapidly changing nature of defence technologies, agility is critical and this is where engagement with the startup community will help India develop world-class products quickly.

BEL, one of the largest defence PSUs, has been taking initiatives to achieve self-reliance in defence production, with a strong thrust on indigenization and has been outsourcing from the Indian private sector, including MSMEs and startups. “BEL recognises outsourcing as one of the strategic tools to achieve cost benefits and also complement the strengths of the private sector to build a strong industrial base,” says Sharma.

In this direction, BEL has taken several measures to encourage the private sector, including startups, to be part of the supply chain. Some of the measures include relaxing the eligibility criteria for registration from startups as vendors, identifying products/areas for procurement from startups and implementing online vendor registration and e-procurement processes. “Apart from innovation, startups will be expected to be engaged in the development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property,” says Sharma.

Startups often face huge challenges owing to the complicated bureaucratic set up, where they have to compete with much larger companies for government projects. Despite being a promising sector with immense opportunities, the defence startup community is often deprived of funding. Startup founders have urged the government to support them with friendly policies and adequate funding so they may showcase their indigenous innovation to the world.

“Most investors in India look for short-term returns and in the defence sector, the gestation period is comparatively longer,” says Bhaniramka. “India has a lot to learn from the US government which has programmes like SBIR (Small Business Innovation Research) that drive innovations in the defence market, which subsequently create innovative products for general civilian usage as well.”

That said, the silver lining is the government’s intent, with initiatives like Make in India and Startup India, which will open up opportunities in the defence sector as well. The recently-announced DPP-2016 has tweaked many existing policies to address concerns of defence manufacturers and suppliers, which will ensure faster procurement, especially through newly-introduced categories targeted to boost indigenous development through small and medium industries. Startups will surely gain from some of these measures.