The Department for Promotion of Industry and Internal Trade (DPIIT, formerly DIPP) has made a recommendations to promote startup culture in India and in same DPIIT has proposed to set up an India Startup Fund of ₹ 1,000 crore (~ US$ 143.5 Million) corpus initially, which will be used for making investments in startups working in Priority Areas such as — rural healthcare, water and waste management, clean energy solutions, cyber security and drones, reported Economics Times.
The proposed fund will be separate from the 10,000 Crore Fund of Funds for Startups (FFS), which was set up in 2016 under the Small Industries Development Bank of India (SIDBI).
“The government wants to offer seed funds for high-tech, cutting edge startups. The proposal is to provide seed funds to 5,000 startups in priority areas,” said an Economic Times report citing senior government official aware of the proposal by DPIIT.
Besides investing in cutting-edge startups in priority areas, the proposal also mentions to include startups working in other technologies like Internet of Things (IoT) and artificial intelligence (AI).
With top to down flow of capital, the existing ₹10,000 crore FFS, through SIDBI, invests in venture capital and Alternative Investment Funds (AIFs) that in turn invest in startups. These AIFs were selected by SIDBI based on a number of criteria, with the primary one being that the selected ones will have to would to invest more than 50% of the corpus allocated to them in SMBs.
In a new and separate plan, the DPIIT has recommended regulatory changes aimed at promoting venture capital and angel investments, especially from Indian investors.
The proposed changes would be in addition to those announced earlier in February, which was to allow investors and entrepreneurs get breather from the so-called angel tax. The government increased the exemption threshold and kept investments by listed companies of certain minimum size, venture capital funds and non-residents in startups outside the ambit of the tax to bring relief to companies registered as startups with the department.
Earlier this month, IndianWeb2.com reported that as part of ‘Startup India Vision 2024’, DPIIT has proposed relaxation in the income tax laws pertaining to sale of residential properties and carrying forward of losses in order to promote growth of budding entrepreneurs and startup founders, who face difficulty in raising capital.
It may be recalled that in April last year, DPIIT had shown it unhappiness to SIDBI for slow disbusement of Startup FFS and till that time, only Rs 600 crore of these Rs 10,000 crore have been sanctioned and a meagre sum of Rs 5.66 crore had reached just to one new venture.
In February 2017, SIDBI allocated Rs 110 crore from the 2016 announced Rs 10,000-crore ‘fund of funds’ for startups, to four venture capital funds, namely Orios Venture Partners Fund II, Kae Capital, and two little known funds, Saha Trust and Kitven Fund III.