The finance minister has given a significant push to promote entrepreneurship and start-ups with the setting up of a Rs10,000 crore venture capital fund, in the hope of boosting capital flow to the SME sector.
"Promotion of entrepreneurship and start-up companies remains a challenge. While there have been some efforts to encourage, one principal limitation has been availability of start-up capital by way of equity to be brought in by the promoters," Arun Jaitley said during the presentation of the budget.
"In order to create a conducive eco-system for venture capital in the MSME sector, it is proposed to establish a Rs10,000 crore fund to act as a catalyst to attract private capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies," he said.
The government has also made a special allocation of Rs200 crore to provide credit enhancement facility for young start-up entrepreneurs from scheduled castes through an IFCI scheme. There would be special focus on supporting software product start-ups as well, the finance minister said.
Aditi Shrivastava, head, Intellecap Impact Investment Network, described this as a major step. "While some may argue that Rs10,000 crore is not a sizable corpus compared to the size of the SME segment, we believe that it is a major uptick to the mere Rs200 crore of total reported angel investments in India in the last eight years," said Shrivastava.
Shashank ND, CEO, Practo.com, said, "Start-ups are the lifeblood of any booming economy. Technology and healthcare sectors are booming and start-ups that deal with the intersection of both will benefit immensely."
Shrivastava said, "It is a big positive that the government has decided to deploy this corpus as a 'Fund of Funds' instead of direct investment into start-ups. This means that the funds will be deployed through existing players/intermediaries that have the expertise to evaluate and mentor start-ups. It remains to be seen how these intermediaries will be selected."
The finance minister also said that the legal bankruptcy framework would be made more entrepreneur-friendly, to allow easier exits for SMEs.
Alok Saraf, executive director - private & entrepreneurial practice, PwC India, said, "An investment allowance of 15 per cent for the SME investing more than Rs25 crore in plant and machinery will be a booster as against the earlier investment threshold of Rs100 crore to claim the allowance. A Rs10,000 crore-corpus fund and simplified bankruptcy rules may improve the risk-taking capabilities along with providing an easy exit opportunity."