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Karnataka Startup Policies and Rise as Global Tech Cluster

Presenting the State Budget on Monday, Chief Minister B S Yediyurappa announced that the government would revise Karnataka's

The Karnataka government would revise the state’s existing startup policy, announced Chief Minister B S Yediyurappa, who also holds the Finance Ministry portfolio, during the State Budget presentation.

It is worth highlighting that Karnataka was a pioneer state across the country to develop a separate policy for the startup ecosystem. The initiate received a major boost after the Prime Minister of India, Narendra Modi, rolled out the Startup India mission in 2015.

The state’s capital, Bengaluru, is often dubbed as India’s Silicon Valley and is already considered one of several primary startup hubs within the country. It attracts each enterprise and expertise capital fund and a residence to quite a few unicorns of India.

Additionally, the chief minister introduced a new enterprise capital fund of 100 crore INR to aid new and rising expertise institutes. Bengaluru also intends to provoke measures to create cyber-security policy and knowledge center policy.

The budget also proposed an analysis park to keep with the expertise development tendencies, an expenditure of over ten crore INR to promote quantum computing analysis and associated applied sciences.

Notably, the Karnataka state government has already built a Centre of Excellence for Data Science and AI in collaboration with Nasscom in Bengaluru. The initiative aims to place the state as a premier world vacation spot for synthetic intelligence.

The center’s goal is to foster disruptive innovation over developing an entrepreneurial ecosystem and high-quality human capital to meet AI expertise necessities.

The state budget also laid out a 7,800 crore INR outlay for Bengaluru with tasks such as the peripheral ring highway, doubling railway tracks, fast-tracking the suburban rail undertaking implementation, and creating tree parks, and automated ticketing programs.

There expectations that these announcements would ease the city’s infrastructure woes (1).

Let’s look at other Karnataka government policies it has adopted to accelerate and promote its entrepreneurial ecosystem.

Engineering and Research Policy

The IT & BT Department, Karnataka Government, in collaboration with the Nasscom, National Association of Software and Service Companies (2), announced the Karnataka State policy for ER&D, engineering, research, and development.

The Karnataka cabinet has approved the policy.

The first-of-its-kind policy aims to foster an innovative ecosystem, enable the skill development needed to mark the reproving and evolving requirements of changing global technology landscape, enhance MNC ER&D, and evangelize ER&D Prowess to the globe.

While commenting on the policy launch, Dr. C N Ashwathnarayan, the Deputy Chief Minister of Karnataka (3), stated that the new policies aim at invigorating the state’s R&D landscape and enhance its competitiveness across the globe. He further added that the government expects these new policies to improve the FDI inflows in R&D and boost the innovation and research ecosystem.

Notably, Nasscom has offered its support to the state government in building the policy initiatives which would propel the R&D in Karnataka state on an accelerated growth trajectory.

Debjani Ghosh, the President of Nasscom (4), while expressing her views on these new policies, stated that Nasscom is proud that it is associated with the high-impact policy initiative, which focuses on fostering the ER&D ecosystem in the state.

She further added that Karnataka had been the pioneer in India to create a thriving ecosystem for R&D, and these policies would further strengthen its position as the prime destination for engineering and research within the country. Moreover, these new policy initiatives would also offer a benchmark for other states to follow and help India become an international hub for Research and Development.

The state government has designed a budget to drive the policy initiatives. Some of these proposed brands as a part of the policy include:

  • Enhance MNC and R&D penetration by offering subsidies to global organizations looking to establish new research and development facilities or expand their existing R&D facilities in the state
  • Foster R&D and innovation ecosystem by funding commercial innovation and research programs in emerging technologies, setting world-class R&D infrastructure (including testing and prototyping) to broaden the portfolio of R&D services, aiding the open innovation labs establishments for corporate-startup partnership, and expanding digital innovation with government entities to bolster the sector by allowing field trial on government infrastructure.
  • The growth and scale of advanced R&D skillsets within the state through sponsorships of industry-supported research fellowship programs, student internships, and certifications in emerging skills in research and development.

Dr. E V Ramana Reddy, IAS, and Additional Chief Secretary, Department of IT&BT Urban Development (5), while commenting on the policy, stated that officials drafted these new policies with a well-defined focus on simulating the Research and Development industry in the state and developing an environment, which encourages innovation.

He is confident that these new policies would help Karnataka establish itself as a global leader and deliver significant growth in foreign investments in research and development.

These policies would catalyze the Karnataka government’s ambition of developing the state as the leading global digital engineering R&D destination. Dr. Ajay Prabhu, President of QueST Global and Chair for Nasscom engineering, R&D Council (6), spoke on the policy stated that year and the policy is a giant leap by the government of Karnataka to make the state a leader in engineering R&D in the part of the world (7).

Subsidies Under the Policy

Under the policy, the Karnataka government would offer subsidies to MNC’s Indian entities to set up or expand their GCC, Global Capacity Center, in engineering R&D beyond Bengaluru. It includes reimbursement of up to 50%, up to 2 crore INR or 1,666 INR per employee per month, 20 lakh INR recruitment assistance, and investment subsidy equal to 20% of the total investment to 2 crore INR.

Further, it would also consider subsidy on a case-to-case basis if an R&D center offers over 3,000 vacancies or investment of 250 crore INR or more.

As per the policy document, Karnataka contributes more than 40% of its engineering and R&D revenue and hosts more than 400 research and development centers and global innovation centers. It also has more than 50% of India’s R&D talent, including a large pool of people with specialties in automotive R&D.

With the policy, the aim is to make Karnataka contribute nearly 40% of the country’s engineering research and development during the policy period and make additional 50,000 vacancies.

The policy has identified five priority sectors for its purpose:

  • Aerospace and defense
  • Auto, auto components, and electric vehicles
  • Biotechnology, pharma, and medical devices
  • Semiconductors, electronic design and manufacturing, telecom
  • Software products

The policy is in check with the considerations made on India’s larger R&D ecosystem in the year’s economic survey.

Read Also: Economic Survey 2021 Major Points and Highlights

It stated that ramping up investment in R&D would be crucial for India to emerge as the world’s third-largest economy by GDP, gross domestic product, and the key to increasing investment from the private sector (8).

India’s Global ER&D Market to Hit 63 Billion USD

The ER&D 2021 policy of Karnataka stated that there are expectations that India’s share in the global engineering and research and development would grow at a CAGR, compound annual growth rate of 12 to 13% to reach 60 billion USD by 2025 from 31 billion USD in 2019.

Notably, the three leading sub-sectors driving the growth in 2019 include semiconductors, automotive, and products, stated the report.

Engineering Research and Development is one of the fastest-growing segments in the country as India rises as a design and engineering hub for automobiles, consumer electronics, aerospace machinery, and semiconductors. The country’s demographic dividend is a key growth driver as 50% of its total population is under the age of 25. Moreover, the Indian youth also leads the Indian startup ecosystem with the medium age of founder entrepreneurs as only 31 years old.

According to the report, such a talent base needs to be tapped and nurtured adequately to complement the engineering research and development growth story.

The state government plans to invest in specific programs to catalyze research innovation by bridging the private sector and academia gap. The state government’s electronic system design and manufacturing policy of 2 crore INR as research and development grants per year. Similarly, its IT policy also offers research and development grants of up to 1 crore (9).

Promoting Coastal Entrepreneurial Ecosystem

A virtual meeting on ‘Promoting Entrepreneurship Ecosystem in Coastal Karnataka’ was held on 12th February 2021.

Mangalore University, Manipal Academy of Higher Education, MAHE, a deemed university NITK Surathkal, Yenepoya University, CII Mangalore Chapter, Srinivas University, and IKP jointly organized the meet.

The NSTEDB, National Science and Technology Entrepreneurship Board, DST, Department of Science and Technology, BIRAC, Biotechnology Industry Research Assistance Council, Department of Biotechnology, NITI Ayog of the Indian Government, Atal Innovation Mission, BT and S&T, and department of IT, Karnataka government and ISBA, Indian STEP and Business Incubator Association supported the program.

It is worth highlighting that the coastal Karnataka region is known for its strong cultural environment and education, and also several industries such as cashew, hotel, fisheries, banking, manufacturing, information technology, and more who have emerged from the region.

The area also has several STEP and incubators supported by different central and state governments’ departments. In light of several initiatives by the Indian government, such as Atmanirbhar Bharat, STIP, Science Technology and Innovation Policy, NEP, New Education Policy, NISP, National Innovation, and Startup Policy, officials have planned to have a virtual made of relevant stakeholders on ‘Promoting Entrepreneurship Ecosystem in Coastal Karnataka.’

Lt. Gen., Dr. M D Venkatesh, MAHE Vice-Chancellor (10), mentioned the requirement to formulate the region as a rising hub for entrepreneurship and innovation on the global map. The meet’s broad objectives include:

  • Strengthening the entrepreneurial ecosystem of the area.
  • Industry institute interaction.
  • Networking at the regional level.
  • Organizing annual entrepreneurship and tech summits.
  • Communication between stakeholders and society about innovation and entrepreneurship development.

According to Dr. T V Mohandas Pai, the Chairman of Manipal Global Education Services Private Limited (11), developing a culture of entrepreneurship is the need of the hour. He added that the Indian youth have many potentials, and they need encouragement to take up innovation and entrepreneurship.

He believes that we can inspire Indian youth by organizing a series of interactive sessions with successful founders of great companies and startups.

Universities of the region must play a primary role in strengthening the entrepreneurial ecosystem by connecting relevant stakeholders and industry, added Pai.

According to Pai, the state government needs to develop a platform in the form of a consortium of universities and other stakeholders. He believes that conducting grand challenges via consortiums can make larger impacts. He also encourages university courses to focus on building high-quality skills and hands-on experiences (12).

It is worth highlighting that a structural implementation of these measures would result in the emergence of more than ten unicorns from coastal Karnataka in the upcoming decade. These moves would also ensure that the region’s youth would get employment in their native place, and they are not forced to migrate to other overcrowded metropolitan cities in search of a career. The rise of entrepreneurial units in this region would also facilitate the coast as an economic hub.

M D Venkatesh further stresses that the state government needs to develop a regional economy by strengthening the entrepreneurial ecosystem beyond universities’ boundaries. He further stresses the need to encourage entrepreneurship at home and even at the school level (13).

Policy Framework on Agriculture Startups

B C Patil, the agriculture minister of Karnataka (14), stated last month that the government would soon develop a policy framework on agriculture startups and operational guidelines. He stated that every agriculture startup could offer missing links in the agricultural value change and deliver efficient, innovative products, technologies, and services to consumers and commerce.

While addressing a virtual session of FICCI, Federation of Indian Chambers of Commerce and Industry summit, and awards for agriculture startups, he stated the food and agriculture practices and enterprises in the country are set for transformational changes with the new government policies. According to Patil, agriculture has been rapidly evolving into agribusiness in terms of structure and approach.

Notably, to develop a pleasant ecosystem for agriculture startups in Karnataka, the state government has constituted a committee to form a policy framework on agriculture startups and operational guidelines.

According to his statement, the committee has submitted the policy documents to the government, and the Karnataka government is in the process of releasing them soon.

Chairman of FICCI National Agriculture Committee and Group president, Corporate Relation and Alliances, TAFE Ltd, T R Kesavan (15), stated that every agriculture startups have its strength and a requirement to create a dedicated cell for agricultural startups.

According to Hemendra Mathur, the FICCI Task Force Chairman (16), agriculture startups, Bengaluru is India’s tech capital. We must build a center for excellence in the agriculture sector with the kind of talent and resources available in Karnataka.

Pravesh Sharma, the chairman of FICCI Task Force on FPOs and co-founder and CEO of Kamatan Farm Tech Private Limited (17), emphasized having state-level agriculture startup policy for different states. He added that it should be supported by a dedicated organization to promote agriculture startups.

Dilip Chinai, FICC Secretary-General (18), stated that the agriculture ecosystem is witnessing a wave of entrepreneurship with futuristic and disruptive ideas (19).

The Overview

Karnataka is the first state of India to have its startup policy and aerospace policy. The state also offers a single-window clearance which offers more than ten state departments. More than 80% of global IT firms have their India operations in Bengaluru, Karnataka. And it recorded more than 17.4 billion USD worth of exports during the years 2018 and 2019.

Mercer has also declared it the Best Place to live and work by Expatriates. It is estimated that Karnataka would note 256 billion USD GSDP in the fiscal year 2020-2021. Notably, it had a 7.94 billion USD FDI inflow between October 2019 to September 2020.

Karnataka offers India tremendous strengths since 65% of aerospace exports from India come from its aerospace industry. Over 3,500 IT firms based in Karnataka contribute more than 35 billion USD in annual exports. Moreover, even 75% of India’s flower product, 70% coffee output, 47% silk production comes from Karnataka state.

Karnataka also has 380 biotech firms, over 194 biotech startups out of India’s total 950 biotech companies. More than 60% of the country’s total machine tools, production, and engineering come from Karnataka. Over 400 R&D centers have made Karnataka the research, knowledge, and innovation hub of Asia.

Karnataka has announced several policies to accelerate its startup ecosystem, including but not limited to:

The Information Technology Policy 2020-2025 aims to build an ecosystem of sustainable growth and ramp up local capabilities in R&D, innovation, and advanced manufacturing at an international scale.

Karnataka Startup Policy 2015-2020 to accelerate the state’s startups via strategic investment and policy interventions through robust innovation climate in Bengaluru.

Special Incentives Scheme for ESDM Sector 2020-2025 offers special incentives to ESDM sector investment geographically broad and encompasses the entire state.

Karnataka Aerospace Policy 2013-2023 to position Karnataka as an important location for India’s aerospace industry. Notably, institutes such as BEML, BHEL, NAL, GTRE, DRDO, ADE, ADA, ISRO, and ISSc, have their operations in Karnataka.

Karnataka Agribusiness and Food Processing Policy 2015, notably, Karnataka is home to India’s big players like ITC, Gujarat Ambuja, Nestle, Britannia, Parle, Cargill India in the agribusiness and food processing industry.

Karnataka Biotechnology Policy, 2017-2022, the state was the first in the country to roll out a policy on Biotechnology, even when the sector was in a nascent stage.

Karnataka Industrial Policy 2020-2025 aims to maintain an industrial growth rate of 12% annually and enhance the manufacturing sector’s contribution to the state’s GDP.

Karnataka ICT Policy 2021 aims to retain its position as the state with the largest skilled workforce in the country for the IT sector.

Notably, Karnataka is also the first state to launch a comprehensive EV policy, Karnataka Electric Vehicle and Energy Storage Policy. It is also one of the country’s mineral-rich states, with an area of 1.92 lakh sq. km., covering 29 districts.

Karnataka aims to develop strong infrastructure and meet the rising demands of the rapidly growing economy to meet the rising import and export traffic with its Minor Port Development Policy.

Karnataka’s NRI Policy envision plays a catalytic role in developing a sustainable link between the state and NRI globally to create a progressive, prosperous, and vibrant Karnataka.

The Policy of Infrastructure Projects 2018 of Karnataka envisages increasing the quantity and quality of infrastructure via implementing a multi-year infrastructure plan.

Karnataka had also rolled out a Retail Trade Policy 2015, considering India is the fastest-growing retail market globally with over 1.2 billion people.

Karnataka Semiconductor Policy 2010 sets a series of measures and initiatives to attract significant investments in its semiconductor sector.

The State Policy for Special Economic Zones 2009 receives special treatments as duty-free enclaves with the purpose of industrial, service, and trade operations with exemption from customs duties. It also serves as a more liberal space on foreign investment, levies, and other transactions.

Karnataka Solar Policy 2014-2021 aims to harness the state’s potential solar resources and evolve as a country’s Solar Generation hub.

Karnataka Tourism Policy 2020-2025 offers a framework for the state’s tourism industry to overcome several on-going difficulties, adapt to the new normal, and stay competitive and healthy in the global tourism space.

Karnataka is a popular IT hub of India and has drawn a vast age population into the animation and gaming sector. It rolled out Animation, Visual Effects, Gaming and Comics Policy 2017-22 (20).

With these policies in its bag, Karnataka surely deserves its place as the 4th largest technology cluster worldwide after the Bay Area, Boston, and London. What more information do you need? Let us know in the comments!