Union Cabinet approves Rs.10k cr fund for startups

The Dollar Business Bureau

The Union Cabinet on Wednesday cleared the setting up of Funds for Startups (FFS) at Small Industries Development Bank of India (SIDBI) as a contribution to several alternative investment funds (AIF).

The cabinet approved a corpus fund of Rs.10,000 crore for the FFS at SIDBI. The fund is in line with the government’s Start-up India Action Plan unveiled in January this year.

“The Union Cabinet has approved the establishment of Fund of Funds for Startups at SIDBI for contribution to various alternative investment funds, registered with Securities and Exchange Board of India (SEBI), which would extend funding support to start-ups,” a government statement said.

The corpus fund would be established over the 14th and 15th cycles of Finance Commission, ending in 2025, depending on the progress of the initiative and the availability of funds, it added.

The government has already given Rs.500 crore for the corpus fund in 2015-16 and Rs.600 crore was allocated for 2016-17.

The Department of Industrial Policy and Promotion (DIPP) will observe and review the performance as per the Startup India Action Plan whereas SIDBI will take care of the day-to-day operations of the Fund.

“The FFS is estimated to create jobs for 18 lakh people after its full deployment,” the statement said.

The corpus will contribute to several privately promoted AIF listed with SEBI which, in turn, would provide support to startups. The fund of Rs.10,000 crore could possibly be the basis for catalysing an equity investment of Rs.60,000 crore and double as much the debt investment, it said.

In a bid to promote startups, Finance Minister Arun Jaitley in his budget speech had announced tax exemption of 100 percent for startups on profit in 3 years out of the firm’s first 5 years.

In India, startups have to face various challenges that include non-availability of risk capital and other finances from banks. Thus, many startups establish their venture outside the country. This new fund will support in creating an atmosphere of innovation and entrepreneurship. This will also enable the startups in becoming full-fledged business enterprises.