India Must Prioritize Deeptech, Hardware Over IT Exports: Nithin Kamath

Nithin Kamath, founder and CEO of Zerodha, has issued a significant call for India to strategically pivot its technological focus from predominantly IT service exports to nurturing robust domestic deep technology and hardware manufacturing capabilities. He warns that the nation can no longer afford to rely solely on asset-light IT services in a rapidly evolving global environment characterized by escalating geopolitical tensions, protectionism, and the transformative impact of Artificial Intelligence (AI). Kamath articulated his views in a post on 'X' (formerly Twitter), highlighting a fundamental shift in global dynamics since 2020. He noted an increase in export controls on critical components like semiconductors, rare earth minerals, and advanced manufacturing equipment, transforming supply chains into significant national security vulnerabilities. In this new era, where technology is effectively becoming 'nationalized', Kamath emphasized that if India fails to build its own deep tech capabilities, it risks being 'locked out' when it matters most, making self-sufficiency a necessary insurance for the country's future. The rise of AI is another pivotal factor driving this necessity. Kamath predicts that as AI becomes increasingly capable of generating the majority of software, the 'asset-light' business models that propelled India's IT service sector over the past decade will face considerable challenges. He believes the next decade will belong to 'atoms, not just bits,' necessitating capital investment in physical infrastructure such as defense systems, batteries, and semiconductors. This perspective resonates with the idea that while India has excelled in the 'App Economy,' the 'Atom Economy' of semiconductors, quantum computing, and biotech presents different, more complex challenges. Several credible sources corroborate Kamath's assessment of the challenges and opportunities in India's deeptech sector. Articles from Moneycontrol, NDTV Business, and other editions of The Economic Times underscore the urgent need for India to build its deep tech capabilities to avoid future dependencies and vulnerabilities. The narrative extends beyond just Kamath's opinion, reflecting a growing consensus among industry leaders and policymakers regarding India's strategic technological direction. Chirag Gupta, Managing Partner at 8X Ventures, for instance, points out that deeptech startups often fail due to structural issues like IP ownership and premature scaling, rather than technological inadequacy, highlighting the need for a robust institutional framework. Despite the clear need, India's deeptech ecosystem faces several structural hurdles. Access to 'patient capital' is a significant challenge, as deeptech ventures typically have long gestation periods and require substantial, long-term investments before generating returns. Domestic venture capitalists often prefer faster returns from sectors like fintech or SaaS, pushing promising Indian deeptech startups to relocate their headquarters to places like the US or Singapore to secure necessary funding. There's also a 'valley of death' in growth-stage funding, where startups struggle to secure Series B+ capital needed for scaling manufacturing, research, or piloting. Talent acquisition and retention, regulatory complexities, market adoption challenges, and inadequate specialized infrastructure (like advanced labs and research facilities) further impede deeptech growth. Protecting intellectual property (IP) also remains a convoluted and lengthy process in India, deterring innovation and commercialization. However, the Indian government has acknowledged these challenges and is making concerted efforts to foster a conducive environment for deeptech and hardware. Initiatives like the 'Fund of Funds' with a dedicated focus on deep technology, and the operationalization of the Anusandhan National Research Foundation (ANRF) corpus of ₹1 lakh crore, aim to provide the necessary 'patient capital' for R&D-heavy sectors. The government is also doubling down on hardware sovereignty and digital infrastructure, evidenced by the increased outlay for the Electronics Components Manufacturing Scheme and the launch of India Semiconductor Mission (ISM) 2.0. Kamath emphasizes that government support needs to go beyond headline allocations and include R&D tax credits, subsidies, first-purchase guarantees, streamlined approvals, and other sustained incentives across decades, not just election cycles. He notes that India possesses genuine local talent capable of building what is currently imported, requiring only the right support to thrive. This perspective is reinforced by the government's strategic bet on India's deeptech future, signalling a broader strategy to strengthen the technology manufacturing base, attract venture capital, and accelerate innovation towards self-reliance. The overall sentiment among experts is that while India has made significant strides in its startup ecosystem, the next phase demands a focus on building foundational technologies to ensure long-term economic resilience and strategic autonomy in a fragmented world. The shift towards deeptech and hardware is not merely an economic imperative but a strategic necessity for India to secure its place as a global technological leader.

Frequently Asked Questions

Read Full Story on Quick Digest