Union Finance Minister Arun Jaitley in his Budget speech announced the setting up of a Rs 10,000 crore fund to boost capital flow to startups and small and medium enterprises (SMEs) in the country.
The fund will promote financing in the form of equity, quasi-equity and other forms of risk capital. The announcement of the fund allocation and the repeated mention of startups and SMEs in a budget speech is welcome. So far, small companies have largely relied on debt or friends and family for startup as well as working capital. This fund will encourage more risk capital and equity-based fund flow to entrepreneurs.
The government does realize that finance is a major challenge for entrepreneurs in the country and announced the creation of a committee with representatives from the Reserve Bank of India, Finance Ministry and Ministry of Micro, Small and Medium Enterprises to examine fund flow to the Micro, Small and Medium Enterprises (MSME) sector. Another fund, the "Technology Development Fund" with a corpus of Rs 100 crore, has also been announced.
Putting together a corpus of Rs 10, 000 crore will not be a challenge for the government which has access to multiple sources such as banks, pension funds, high networth individuals, etc.BUDGET SPEECH: Full text | Video
However the quantum of allocated funds is not adequate to meet the needs of India's growing base of first generation entrepreneurs. "Rs 10, 000 crore translates to less than two billion dollars which is hardly the size of a private equity fund in India," says Ankur Bisen, Senior Vice-President at management consulting firm Technopak.
The success of such a fund will largely depend on implementation. There will be a need to get competent people to identify the right kind of investment opportunities, set targets for deployment of the fund in a time-bound manner, etc.
To put things in perspective, the Rs 5,000 crore fund announced in Budget 2012/13 to help small enterprises by then Finance Minister Pranab Mukherjee still remains a non-starter.
The fund, managed by Small Industries Development Bank of India, had received about Rs 500 crore and Rs 340 crore was invested. Clearly, for the new fund implementation will be key. #budgetbt Tweets
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