Govt. Launches India Aspiration Fund & Make in India Loans for Indian Startups, SMEs; Allocates Rs.12000 Cr – Reshared Year 2015

PM Modi thundered “Start-up India, Stand up India” during his Independence Day speech in Delhi, in order to inspire more Indians into entrepreneurship. The best part is that, the talks are transforming into concrete action.

In a new push for assisting startups and SMEs, Govt. has launched two new investment and loan programs with a combined budget allocation of Rs 12,000 crore.

Minister of State for Finance Jayant Sinha said while announcing these programs, “India is expected to surpass the UK in terms of number of startups launched and would be behind only to the US. There is need for more funds that focus on startups and growth stage MSMEs,”

Both of these programs will be supported and managed by Small Industries Development Bank of India (SIDBI).

India Aspiration Fund

Finance Ministry launched a unique investment program, described as ‘fund of funds’, which will invest in various VC funds for meeting the equity requirement of MSME start-ups. Hence, instead of directly funding in startups, India Aspiration Fund (IAF) will help the VCs to come up with newer investment ideas and protocols.

Besides infusing crores of funding into SMEs, this will also create lakh of new jobs.

In a statement, SIDBI described the objective of IAF to “catalyze tens of thousands of crores of equity investment into start-ups and MSMEs (micro and small enterprises), creating employment for lakhs of persons, mostly educated youth, over the next four to five years,”

Life Insurance Corporation of India (LIC) will be a co-investor in IAF.

This new announcement of IAF is being linked with the news we reported in February, wherein RBI had announced a corpus of Rs 2000 crore for Indian startups.

As per SIDBI chairman and managing director Kshatrapati Shivaji, Rs.753 crore out of Rs. 2,000 crore has already been committed under IAF to various VCs, which include: IvyCap Ventures (Rs 60 crore), Blume Ventures (upto Rs 30 crore) and Carpediem Capital Partners (Rs 20 crore).

Govt. has roped in veterans of entrepreneurship world to manage IAF: Harkesh Mittal, Secretary, Technology Development Board, Manipal Global Education Chairman TV Mohandas Pai, Info Edge founder Sanjeev Bhikchandani, former Nasscom chairman Kiran Karnik and Indian Angel Network cofounder Saurabh Srivastava are some of the members who will devise strategies to optimally utilize this fund.

SIDBI Make in India Loan for Small Enterprises (SMILE)

In association with SIDBI, Govt. has launched another innovative loan program for SMEs, named as SIDBI Make in India Loan for Small Enterprises (SMILE). A budget of Rs 10,000 crore has been earmarked for SMILE.

Focused on the 25 sectors under PM Modi’s Make in India vision, SMILE will offer quasi-equity and term based short term loans to Indian SMEs which will have less stringent rules and regulations.

Together, these two Govt. initiated programs will help to create more than 20 lakh direct and indirect jobs in the country.

Another Govt. scheme called Micro Units Development and Refinance Agency (MUDRA Bank) is already under process, wherein Rs 20,000 crore has been earmarked for developing startups in India.

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Budget 2017 : ‘START-UPS MAY GET ADDITIONAL TAX BENEFITS IN THE BUDGET’ – Nirmala Sitharaman

Commerce and industry minister Nirmala Sitharaman indicated on Monday that start-ups may get some tax benefits in the upcoming Budget.

Speaking at the one-year anniversary of the government programme “Start-Up India”, the minister said that tax and tax-related matters always come from start-ups as “it makes tangible difference to a start-up, and in that some work has happened, more to be happening. Let’s see what this Budget is going to offer”.

She added that all the suggestions of the entrepreneurs have been compiled by the ministry and given to the finance ministry. Asked about raising the tax holiday for 7 years, she said: “That suggestion also we have given to the finance ministry. We have to wait.”

Tax related (benefits) will have to come only through the budget, she said, adding that suggestions with regard to exempting start-ups from MAT (minimum alternate tax) have also been forwarded.

The Ministry has already suggested the Finance Ministry to consider raising tax holiday for startups to 7 years from the current 3 years to encourage budding entrepreneurs.

 Sitharaman said tax and tax-related matters always come from start-ups as “it makes tangible difference to a startup, and in that some work has happened, more to be happening. Let’s see what this budget is going to offer”.

She said that all the suggestions of the entrepreneurs have been compiled by the ministry and given to the Finance Ministry.

Asked about raising the tax holiday for 7 years, she said, “That suggestion has also been given to the Finance Ministry.”

Tax related (benefits) will have to come only through the budget, she said, adding that suggestions with regard to exempting startups from MAT (minimum alternate tax) have also been forwarded.

Further, she said the government is committed to removing legislative hurdles, if any are being faced. The Centre is also involving local authorities, including states, to help the budding entrepreneurs in terms of local taxes among other measures.

The Minister also asked DIPP secretary Ramesh Abhishek to organise a meeting with RBI, SIDBI, banks and VCs to deliberate on funding related issues.

Sitharaman said this was speaking at the first anniversary of Startup India here in Delhi.

Speaking on the occasion, Abhishek said startups need more support in terms of taxation and infrastructure. “We need to do more for them and we are working with the finance ministry (on tax related matters),” he said, adding that state governments too should extend full support to promote the units in the country.

The DIPP secretary said that although several states are coming out with specific policies related to startups, more needs to be done by the states.

“We are also involving corporates and banks to support start-ups… nothing is cast in stone and we can rework the definition of startups,” Abhishek said.

The department, he said, is also working on extending easy funding to startups and providing a suitable environment.

Further, Sitharaman asked startups to work on areas like animal husbandry, veterinary science, waste management and aggregation of fuel.

“These are the areas where we want startups to work on. I want them to look at how we can make our existing cities smart,” she said.

The government launched the Startup India initiative in January last year to promote the budding entrepreneurs in the country.

The initiative lays down the road map for creation of a conducive ecosystem for the growth of startups.

As part of the ongoing initiative to facilitate the ecosystem, a virtual hub will soon be rolled out. The hub will serve as a one-stop solution platform for all such queries and also a meeting ground for investors, incubators and startups.”

Further she said the government is committed to removing legislative hurdles, if any, being faced by them. “The Centre is also involving local authorities, including states, to help the budding entrepreneurs in terms of local taxes among others,” she added.

The commerce minister also stated that startups should also explore the option of banks for their funding requirements, instead of solely depending on a single channel — Small Industries Development Bank of India (SIDBI).

“I don’t see why banks also shouldn’t be disbursing start-up funding, apart from just the Small Industries Development Bank of India (SIDBI)… why should funds be disbursed only through one channel,” Sitharaman said.

The minister also asked Ramesh Abhishek, Secretary, Department of Industrial Policy and Promotion (DIPP), to organise a meeting with Reserve Bank of India (RBI), SIDBI, banks and venture capitalists to deliberate on funding related issues. Speaking on the occasion, Abhishek said the start-ups need more support in terms of taxation and infrastructure. “We need to do more for them and we are working with the finance ministry (on tax related matters),” he said, adding that state governments too should extend full support to promote the units in the country.

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India Aspiration Fund to boost prospects of MSME start-ups

CRISIL has analysed 1,050 start-up micro, small, and medium enterprises (MSMEs) that were rated on the basis of their 2013-14 (financial year April 1 to March 31) financials. For arriving at start-ups, CRISIL has considered MSMEs that started business operations after 2010. The MSMEs featured in the sample are primarily non-e-commerce enterprises that are in the manufacturing and services space.

The analysis reveals that seven sectors – engineering; construction; agri products; textile; printing & packaging; transport & logistics; and outsourcing & support services – account for 68 per cent of these, and 41 per cent are operational in the engineering, construction, and agri products sectors. Several of these sectors form part of the government’s 25 sectors under the ‘Make in India’ programme.

Additionally, the Government of India has recently announced a Rs 10,000-crore India Aspiration Fund to provide equity capital for MSMEs-based start-ups. The average net worth of the CRISIL-rated MSME start-ups in the sample was Rs 35 lakh as on March 31, 2014. CRISIL believes that the new fund provides start-ups with the opportunity to raise capital and to grow, and thus contribute to strengthening the economy.

Finance minister Arun Jaitley has announced the launch of India Aspiration Fund with an initial corpus of $305 Mn set under SIDBI.

The India Aspiration Fund to be set up as “fund of funds” is intended to “catalyse tens of thousands of crores of equity investment into startups and MSMEs (micro and small enterprises), creating employment for lakhs of persons, mostly educated youth, over the next four to five years,” Sidbi said.

The fund will be investing in venture capital funds for meeting the equity requirement of MSME startups.

The India Aspiration Fund will have an initial corpus of $305 Mn. “As and when required, more money can be infused,” Jayant Sinha said.

$115 Mn (INR 753 Cr.) of the total $305 Mn (INR 2,000 Cr.) seed capital has already been sanctioned for the equity fund and disbursements have started. According to SIDBI chairman and managing director Kshatrapati Shivaji, the total, $305 Mn of seed capital can be leveraged to raise $3.8 Bn (INR 25,000 Cr.)

The IAF will be managed by an investment committee which includes Harkesh Mittal, Secretary, Technology Development Board, Manipal Global Education Chairman TV Mohandas Pai, Info Edge founder Sanjeev Bhikchandani, former Nasscom chairman Kiran Karnik and Indian Angel Network cofounder Saurabh Srivastava.

“Any move by the government to assist startups is welcome. However, government announcements are usually met with skepticism, and rightly so. But I am quite encouraged to see the way “The India Aspiration Fund” is structured. Since this is going to be a fund of funds administered by SIDBI, the final money will be routed through professional funds and not some government departments. That should fuel the startup ecosystem. Two thumbs up,” said Ajeet Khurana.