Is DoT's R&D Funding Scheme for Startups in Peril? Find Details Here

The Department of Telecommunications (DoT) is likely to continue with the Digital Communication Innovation Square (DCIS) scheme, despite concerns raised by numerous startups regarding its potential discontinuation. The scheme offers crucial funding support to startups for research and development (R&D) endeavors in new products, innovations, solutions, and intellectual property rights (IPRs).

According to an ET report citing insider information, the government intends to maintain the scheme, albeit with potential modifications in its structure or implementation.

The startups in the telecom sector have voiced concerns over the potential discontinuation of DCIS scheme by the government. The scheme provides funding support to the startups in R&D in domestic design-led telecom companies by providing.

What is the funding structure of DCIS, and how much funding has been released thus far?

As per the scheme documents, it had a budgetary outlay of Rs 124 crore, and Telecom Centres of Excellence (TCOE) India was the implementing agency. Grants disbursed through DCIS have played a pivotal role in revitalizing development activities among beneficiary companies.

So far, in FY24, the approved grant amounted to Rs 47 crore, with Rs 19 crore released. In FY23, the approved grant was Rs 51.5 crore, with Rs 36.2 crore released. In FY22, startup beneficiaries received grants worth Rs 6.6 crore from the government under the scheme.

Under the scheme, the government was providing funds of up to Rs 50 lakh for startups and Rs 2 crore for micro, small and medium enterprises, which could go up to Rs 10 crore based on the project.

Why are startups advocating against discontinuing DCIS?

DCIS was the first scheme offering R&D funding support for private sector telecom innovation. It has been pivotal in supporting startup and MSMEs in research, development, product design, and intellectual property creation within the telecom space.

Despite reaching milestones, certain companies have faced delays in receiving grants from the Department of Telecommunications (DoT) in the last six months. The threat of closing down the scheme midway has prompted startups to raise their concerns.

Voice of Indian Communication Technology Enterprises (VoICE), representing a consortium of companies including Tejas Networks, Sterlite Technologies Limited, HFCL, Tata Consultancy Services (TCS), and smaller entities like Inventum, Infinity Labs, among others, emphasized the detrimental impact discontinuing the scheme would have on ongoing R&D initiatives.

“If the DCIS support is stopped, it may kill our R&D initiatives for all time. We request that the scheme must not be discontinued midway, as product development activities of more than 50 companies will be negatively hit and companies will feel disheartened and discouraged from working on government-led R&D schemes in future,” Voice of Indian Communication Technology Enterprises (VoICE) said in the letter on May 1 to telecom secretary Neeraj Mittal.

Know All About DCIS

DCIS, part of the Champion Services Sector Scheme (CSSS), aims to bolster India's telecom ecosystem by promoting research, design, and manufacturing. It emphasizes indigenous innovation, bridging the gap between R&D and commercialization, and fostering India-specific applications. Implemented by Telecom Centres of Excellence (TCOE) India, DCIS focuses on converting innovative ideas into operational pilots, aiding startup growth, and establishing prototypes.

With a budget of Rs. 124 crores from 2022-23 to 2025-26, it allocates Rs. 112 crores for project funding and Rs. 10 crores for incubation centers. DCIS provides financial aid to projects at the "Proof of Concept" level, covering research, prototyping, and testing. While administrative costs are excluded, it targets startups and MSMEs, driving innovation and positioning India as a telecom technology leader.

Impact on R&D Landscape

VoICE highlighted the potential long-term repercussions of halting DCIS, citing adverse effects on R&D expertise retention and the overall resource pool. Startups stressed the importance of sustained support for meaningful results, especially considering the extended gestation periods typical of telecom R&D projects.

The scheme had 66 startup beneficiaries, which included domestic telecom solutions providers such as Astrome, Lekha Wireless, Coral Telecom, Amantya Technologies, Signaltron, and Resonous in the financial year ended March.

“This support should be sustained for worthwhile results as R&D in telecom has long gestation periods and resources if hired and trained must be sustained for a reasonably long period of time. If the DoT stops the R&D support through DCIS, we are afraid that it would be impossible to retain the R&D expertise that domestic stakeholders have nurtured over the last few months and the resource pool would never be at the earlier levels,” VoICE letter added.

Evaluation of Scheme Continuation - Discontuning Because of Profitablity

While the DoT contemplates closure due to profitability of some MSMEs and startups, VoICE argues for alternative evaluations, emphasizing the necessity of continued support for R&D. They caution against equating profitability with sustainable cash flows, highlighting the potential negative ramifications on companies heavily invested in R&D.

“The balance sheet may show profits since R&D investments are typically capitalised and not expensed but these so-called profitable organisations may be challenged on the cash flow. In many cases, where MSMEs are aggressive on R&D, balance sheets may show that R&D investments far exceed the profits made by the company. As a result of this, cash flows could be negative and to bridge that gap, companies may have borrowed from banks. In such situations withdrawal of support to R&D may be the last nail in their coffin,” the letter read.

Pending Tranches and Future Discussions

Several startups have been awaiting tranche releases for the past six months. The government is expected to deliberate on the matter further, aiming to involve more companies in the decision-making process.

In light of the recent budget allocation of Rs 1,00,000 crore for long-term R&D funding across sectors, VoICE has urged the government to reconsider the discontinuation of DCIS. They advocate for its continuation and strengthening to propel India towards global leadership in emerging technology segments.

The fate of the DCIS scheme hangs in the balance as startups and industry stakeholders await a decision from the government. The ongoing dialogue underscores the critical role of sustained R&D support in driving innovation and competitiveness within the telecom sector.

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