After what has been a historic year of venture capital investments into Indian start-ups, the union government has taken special initiatives to further scale up start-up funding.
Presenting the Budget for 2022-23, Finance Minister Nirmala Sitharaman said the government will set up an expert committee to examine and suggest appropriate measures to scale venture capital and private equity investments in India.
“Venture Capital (VC) and Private Equity (PE) invested more than Rs 5.5 lakh crore last year facilitating one of the largest start-up and growth ecosystem. Scaling up this investment requires a holistic examination of regulatory and other frictions. An expert committee will be set up to examine and suggest appropriate measures” she said.
PE/VC investments in 2021 have recorded an all-time high both in terms of value and volume, according to IVCA-EY PE/VC report, 2021. The year recorded investments worth $77 billion across 1,266 deals, 62 per cent higher than $47.6 billion recorded in 2020. The deal value was significantly propped up by record PE/VC investments of $28.8 billion in start-ups which accounted for 37 per cent of all PE/VC investments in 2021.
Sitharaman also announced a special fund with blended capital to finance start-ups for agriculture and rural enterprise, relevant for farm produce value chain. The fund, raised under co-investment model, will be facilitated through NABARD. This will cover startups will offering solutions for FPOs, machinery for farmers on rental basis at farm level, and technology including IT-based support.
“I look forward to the fund, which will have blended capital raised under the co-investment model through NABARD for financial start-ups in the agriculture and rural enterprises. It will attract capital in the rural sector and ensure scientific upgrades in the farm produce value chain," said Amith Agarwal, co-Founder & CEO of agritech marketplace AgriBazaar.
Government said it will also launch a special scheme in collaboration with private agri-tech players and stakeholders of agri-value chain, to facilitate delivery of digital and hi-tech services to farmers. Use of ‘Kisan Drones’ will be promoted for crop assessment, digitization of land records, spraying of insecticides, and nutrients. The finance minister said start-ups will be promoted to facilitate ‘Drone Shakti’ through varied applications and for Drone-As-A-Service (DrAAS).
Besides the agri-tech fund, government said it will promote blended funds for sunrise sectors. Government contribution will be provided for R&D in sunrise opportunities like artificial intelligence, geospatial systems and drones, semiconductor and its eco-system, space economy, genomics and pharmaceuticals, green energy, and clean mobility systems.
In what could be a huge relief for Internet entrepreneurs and venture capital investors, the government has capped the surcharge on the long-term capital gains (LTCG) at 15 per cent.
“The Union Budget has been very positive in recognising the role being played by tech startups in India's present and future. The biggest step towards removing an anomaly between taxation on capital gains from unlisted and listed shares has been taken with LTCG surcharge being capped at 15 per cent. An expert committee being set up to examine ways to attract investments is the right step as India cannot grow to 5 Trillion economy without more capital,” Anup Jain, Managing Partner, Orios Venture Partners, said.
Defense R&D has also been opened up to startups where they are encouraged to take up design and development of military platforms and equipment in collaboration with DRDO and other organizations through SPV model.
The Budget note also said the Department for Promotion of Industry and Internal Trade (DPIIT) is in the process of creating a Credit Guarantee Scheme for Startups (CGSS) with an outlay of Rs 2000 crore to provide the much-needed debt funding to start-ups. Startup India Seed Fund Scheme (SISFS) is also being considered with an outlay of Rs 945 crore. SISFS aims to provide capital assistance to start-ups in the seed stage. It backs start-ups for proof of concept, prototype development, product trials, market entry, and commercialisation.
The government, over the last few years, has been actively supporting start-up investments through a Fund of Funds for Startups (FFS) and Agriculture Infrastructure Fund (AIF). Managed by Small Industries bank of India (SIDB), the (FFS) is currently being implemented with a corpus of Rs 10,000 crore. Since 2015-16, the fund has released Rs 2291.29 crore. The AIF, approved in 2020, provides medium -long term debt financing facility for investment in viable projects for post-harvest management Infrastructure and community farming assets. Agri-entrepreneurs and start-ups are eligible for this.