Govt sets up Rs 10,000cr fund corpus to encourage startups in India

The startup space in India received another leg-up on Wednesday after the Union cabinet approved the setting up of a 'Fund of Funds for Startups' with a corpus of Rs 10,000 crore at SIDBI (Small Industries Development Bank).

The decision is in line with the government’s Start-up India Action Plan, unveiled in January. The fund, which will be built up over the 14th and 15th Finance Commission cycle ending 2025, is expected to create 18 lakh jobs when it is fully deployed. The fund is over and above the Rs, 500 crore and Rs 600 crore the government provided in 2015-16 and 2016-17 respectively. The finance minister in his 2016 budget also announced 100 percent tax exemption for startups on profit made in any three years out of their first five years.

Further provisions will be made for grant assistance through gross budgetary support by the Department of Industrial Policy and Promotion (DIPP) which will monitor and review performance in line with the Startup India Action Plan.

The fund will make a contribution to various privately promoted Alternative Investment Funds (AIF) registered with SEBI which, in turn, would extend funding support to start-ups. This can trigger equity investments of about Rs 60,000 crore, twice as much debt investment.

The effort is to ease the challenges faced by start-ups in India, including non-availability of risk capital and other bank finances. These roadblocks led startups to set shop outside India.