Startup India Fund-of-Funds scheme releases mere Rs 700 Cr in 3 years

Indian government-backed Startup India initiative, which was set up to help startups get funding in early-stage, has released just Rs 700 crore of its Rs 10,000 crore corpus since its inception three years ago.

Close to Rs 696 crore has been drawn from the SIDBI Fund of Funds, said Commerce and Industry Minister Piyush Goyal in Lok Sabha while answering questions related to the Startup India initiative of the government.

The allocations to registered Alternative Investment Funds (AIFs) and startups are over four times of the released amount.

Despite its promise to speed up the funding disbursal process by leveraging new technology, Startup India has missed disbursal of the targeted outlay couple of times.

Apart from last year's target, in March 2019 the fund had a targeted outlay of Rs 3,300-3,500 crore towards VC firms. It managed to distribute only Rs 2,265 crores, missing its target by Rs 1000 crore.

In 2016, the Cabinet has approved the establishment of ‘Fund of Funds for Startups' (FFS) at SIDBI for contribution to various Alternative Investment Funds (AIFs) with a corpus of Rs 10,000 Cr.

SIDBI, which manages the fund, allocates it to VCs who in turn invest in startups. Delay in the release of funds creates a barrier for VCs, who demand an automated platform that can do away with the physical filing of forms.

Goyal further claimed to have achieved positive results under the scheme through relaxing rules and eligibility conditions for startups to avail the benefit.

In early 2019, the government defined a startup as an entity that has been in operation for up to 10 years instead of the previous seven years from its date of incorporation. It had also raised the turnover cap for startups to Rs 100 crore from Rs 25 crore.

As of November 2019, there are 25,115 recognised startups in India. However, the data on the number of successful startups is not centrally compiled, he added. The government plans to take the amount to 50,000 in the next five years.

Startup India claims to work in a hub and spoke model and collaborates with central and state governments, Indian and foreign VCs and ecosystem stakeholders.

According to the minister, Startup India has organised mentorship programs in collaboration with government organisations, incubation centres, and educational institutions. It claims to have addressed 1,57,138 queries till November 2019.

Among the many initiatives taken under Startup India, Ministry of Corporate Affairs has notified Startups as 'Fast track firms' which allows them faster exit within 90 days against 180 days for other companies.

Further, the minister said to exempt startups profits for a block of 3 years out of 7 years for eligible DPIIT recognised startups. After facing backlash from startups, the government had also exempted Angel Tax for DPIIT registered startups.

To promote innovation, the minister said that rebate has been granted in the patent application and filing fee. Till date, 1,630 patent applications have been granted 80% rebate on filing fee and about 2,895 trademark applications have been granted 50% rebate on fill fee.

Under Startup India program, the minister said that Government e-Marketplace (GeM) has placed 13,666 orders to startups with value at Rs 463.45 crore.

Over the years, there have been concerns raised by startups and investors over ease of doing business, the painful process for supportive business funds and the lack of a good ecosystem for startups to flourish in the country.

While the government might be praised for some of the initiatives, a lot remains to be done.

India, the second-largest country by population, is ranked 63rd globally on ease of doing business and 73rd in readiness for online shopping. Its logistics costs are on the higher side in Asia in comparison to China and Bangladesh.