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Ambitious Rs 10,000 Crore Startup Fund Stuck In Bureaucratic Indecision

Although the RBI has dispersed the money, three government departments have no clue about the management of the fund

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The Rs 10,000 crore startup fund announced by the government last year is in limbo as it's not clear which department is responsible for managing the scheme.

The Reserve Bank of India (RBI) has allocated the money to Small Industries Development Bank of India (SIDBI). This capital will be invested in startups by way of providing equity, soft loans and other risk capital.

But sources in the Government say that the fund is still lying unused. "This was an announcement made in mid-2014, but the money was released by RBI only in May 2015. And till date it has not been allocated to any startup," explains a top source in the Department of Industrial Policy and Promotion. In fact, this top level bureaucrat goes on to add, "Ask Finance Ministry what happened to this Budget announcement."

Where is the fund?

A senior officer says that the Finance Ministry will soon be in a position to announce the first batch of investments from the fund, but another officer confesses that he has no idea about the allocation of this Rs 10,000 crore fund. They pass the buck to another department.

It is the Ministry of Micro, Small and Medium Enterprises (MSME) that is in charge of the disbursement of the fund. A trip to the MSME Ministry does not cast any further light on the fund. An official there just says that they are looking into the matter.

Another senior Government official explains that implementation would have been easier if a board was constituted by the Government to select startups eligible for this fund.

"In fact, there is no clarity where an entrepreneur should apply if he wants funds for his startup from the Government," adds the official.

"This is a classic case of why the government should allow the private sector to make the startup ecosystem a reality," said V. Balakrishnan, founder of Xfinity Capital.

The government has reason to believe in this sector because the numbers are clearly linked with jobs. It makes good on election campaigns in the future. With a growth prospect of 40 per cent and a capacity to generate 80,000-85,000 jobs in two years startups have obviously caught urban India by storm.

Former technocrats like V. Balalkrishnan and Mohandas Pai believe startups will provide 5 million jobs by 2022. The government has therefore seized on to the opportunities of this sector and has made a number of announcements to win invest in this sector. The fund was created to invest in startups that could create technology to benefit the country's several problems in distribution, data collation, security and also ushering an era of smart phone based services.

The government is also easing regulation involving the registration of startups and coming up with incubators across the nation. It is interesting to note that most of this was part of the interim Budget presented by Finance Minister Arun Jaitley last year.

However it has been almost been a year and a half since the VC fund was announced by the Government, but it has seen no implementation. It reminds one of the fate of a similar fund announced in the Budget 2012 by the then finance minister Pranab Mukherjee. A fund of Rs 5,000 crore was announced for small enterprises but it still remains a non-starter with more than 90 per cent of the fund remaining unutilized.

"If such announcements do not become a reality then it can have an impact on startup ideas which are waiting to take off," says V. Natarajan, CFO of Helion Ventures.

Today several state governments have announced startup accelerators. Kerala has already got a robust accelerator in Kochi and Telangana has announced a no questions asked policy, over the ease of setting up a business, for startups and has created an accelerator. Karnataka is setting up a Rs 500 crore fund of funds for this sector too.

While all these announcements are good, the government should put to action some of its policies and actively seek to vet ideas. The indecision over the startup fund can be detrimental to the Modi government because it won power on the promise of supporting business.