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Startup India Seed Fund of INR 1000 Cr going to encourage New Startup

Is the Startup India Seed Fund of INR 1000 Cr going to encourage New Startup Launches post-2020 debacle?

PM Modi assured about government helping start-ups in raising debt capital, though with no further details.
Incorporation of new start-up went down significantly in 2020 as only 1050 incorporated
Early-stage funding boosted around two times in 2020 in comparison to last year as more than $620 million invested

After around one year hinting about the government’s effort on seed funding of start-ups, PM Narendra Modi has announced the ‘Start-up India Seed Fund’ to encourage establishing the fresh start-ups and carry forward their growth.

According to PM Modi, with an aim of offering initial capital explicitly for start-ups, India is coming up with INR 1000 crore Start-up India Seed Fund. This can be significant in terms of establishing start-ups and encouraging their growth. PM Modi has stated this during an event meant for celebrating the fifth anniversary of establishment of Start-up India. Also, the PM has made it clear about the government helping the start-ups generate debt capital; though he hasn’t leaked further details.

A tweet of official Startup India account states that the Startup India Seed Fund is going to provide economic benefits for the start-ups regarding validation of ideas, preparing prototypes, trying out products, introducing in the market, and making the product and idea commercialised.

This has been announced post a fantastic year of initial level funding in the nation. According to the Inc42 Plus Annual Indian Tech Startup Funding Report 2020, the investors are finding early-stage start-ups significant. In 2020, the cumulative capital generated was 403 million dollars. However, it was around $255 million during the same time in 2019. Bridge stage funding amount was $221 million in 2020, which was 98 million dollars in previous year, i.e. in 2019.

Evidently, though, the establishment of a new start-up was hindered in 2020. It was significantly down as only 1050 fresh start-ups were established, which was more than 3,500 in 2019. Is the Start-up India Seed Fund is going to encourage the incorporation of new start-ups in India?

Finance minister Smt. Nirmala Sitharaman declared about strategies for establishing a seed fund for start-ups at beginner level. The finance minister earlier on 1st February 2020 had stated while addressing Union Budget that the government lends proposals for lending early life fund, which includes seed fund for encouraging the strategy making and establishment of an early-stage start-up.

With 2021 Union Budget imminent, the government announcing about Start-up India Seed Fund is indeed encouraging for start-up world. However, as evident through closer observation that execution of these schemes and fund allotments has been problematic.

Lazy moves Startup India’s Fund of Funds

Fund of Funds was established by the Modi government integral to Start-up India programme with hefty INR 10k crore fund allotment. The whole amount was all set to be distributed by 31st March 2025. Above 41k start-ups have been acknowledged by the government till now. But, the government has only released INR 3,798 crores through Fund of Funds. Moreover, only around 1050 crore INR, i.e. 10 percent of the total amount has been disbursed.

The approval process involving inter-ministerial boards has been the major hurdle. It needs approval of IMB as well for claiming IT benefits as part of Section 80-IAC norms. Reports suggest that about 5k start-ups had filed applications for Income tax relaxation in between 1st March 2016, and 31st March 2019. But, only 94 start-ups have managed to obtain IMB approval regarding tax exemption during the tenure.

It is still vague whether Start-up India Seed Fund will emerge within Start-up India Funds of Fund, or whether it will remain distinct fund option. During the Start-up India eve on 16th January 2021, investors sent their representatives to Indian government for allowing funds of public sectors like Life Insurance Corporation of India (LIC) and the National Pension Scheme (NPS) to support funds of venture capital that invests in Start-ups. Also, investors have requested for 10-year visibility on taxation norms to the government to refrain unprecedented challenges.

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