Finance minister Arun Jaitley on Tuesday launched two funds by Small Industries Development Bank of India (Sidbi), one for funding start-ups in India and another to aid small enterprises.
The India Aspiration Fund is intended to “catalyse 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,” Sidbi said in a statement.
The India Aspiration Fund is a fund of funds that would invest in venture capital funds for meeting the equity requirement of MSME start-ups.
Life Insurance Corp. of India (LIC) will be a partner and co-investor in the fund.
The second fund is a debt fund called SIDBI Make in India Loan for Enterprises (SMILE), which was announced in the Union budget in February. The fund will provide soft term loans and loans in the nature of quasi-equity to MSMEs to meet debt-to-equity norms and pursue growth opportunities in existing MSMEs.
The India Aspiration Fund will have an initial corpus of Rs.2,000 crore, said minister of state for finance Jayant Sinha. “As and when required, more money can be infused,” he said.
SIDBI chairman and managing director Kshatrapati Shivaji said Rs.753 crore of the Rs.2,000 crore seed capital has already been sanctioned for the equity fund and disbursements have started from Tuesday. The total Rs.2,000 crore of seed capital can be leveraged to raise Rs.25,000 crore. This Rs.25,000 crore equity can then be used to raise debt of further Rs.50,000 crore (2:1 debt-equity) and, hence, the Rs.2,000 crore fund of funds can effectively raise Rs.75,000 crore.
“The problem for start-ups is how to mobilize the margin money and equity. India Aspiration Fund can solve that,” Shivaji said.
Jaitley said India’s problem is how to create employment and how to move people from overstaffed agriculture sector to areas such as services and manufacturing.
“You need to take millions of people out of agriculture into these sectors. One thing that’s going in India’s advantage is that India’s greatest competitor in manufacturing is facing a rising wage bill problem. We need to grab this opportunity and fill up the space,” he said.
He said big industries don’t create many jobs, but small and medium enterprises have added 11-12 million jobs.
“Small firms fund their own business, create employment and certainly is not responsible for non-performing assets,” Jaitley said.
U.K. Sinha, chairman of the Securities and Exchange Board of India (Sebi), said $15 billion came into the country in 2014 as venture capital and private equity and in the previous year, that figure was $13 billion.
Sinha said more than 500 alternative investment funds have been created. That figure will rise after tax clarity has been spelt out by the government recently.
He said every year, about 800-1,000 start-ups are coming up and, hence, start-up capital from the government will go a long way.
“Indian economy will grow rapidly to reach the middle-income zone soon. But the problem is how we zoom past that to reach the high-income group. To do so, we need to create infrastructure that will take care of this push in the next five years.” Jayant Sinha said.