Start-ups 2019: Why the Modi govt is being cautious in funding enterprises

Consider this. Since 2016, when Startup India was launched till 2018, new ventures in India raised over $15 billion in funding from investors. The Modi government had the launched the scheme with a $1.5 billion corpus (or Rs 100 billion), which would be used to fund start-ups in India. This corpus was to be paid to Alternate Investment Funds (AIFs), which in turn fund various start-ups in the country.

Instead, what emerges is a picture of caution, not only on part of the government but also on part of some of the AIFs that have received money from it. According to the government’s latest status reports, just about $215 million (or Rs 15 billion) has been sanctioned to 30 AIFs. The AIFs which received money from the government of India’s ‘fund of funds’ managed by the state-owned Small Industries Development Bank of India (Sidbi), have used this money to fund 163 start-ups across the country till date. The top five private investors have invested in as many start-ups during 2018, as many of the government-funded AIFs have, since the launch of Startup India scheme in 2016.

Government statistics meanwhile show that just five out of the 30 AIFs got more than a third of the money under the Startup India scheme. These AIFs, in turn, invested in just 20 start-ups out of the total 163 that have been funded till date. In fact, some of the AIFs that got the most money under the scheme have not invested anywhere.  

A look at some of the other components of Startup India shows that the Modi government may have gone slow in releasing money but has been quite active in promoting a supporting ecosystem to foster entrepreneurship under the Atal Innovation Mission (AIM) – named after late prime minister Atal Bihari Vajpayee. One of the components that is directly targeted at start-ups is the establishment of Atal Incubation Centres, to whom the government gives a funding of Rs 100 million each over a period of five years. 

The government’s think tank Niti Aayog, which is overseeing AIM, states that it has been able to set up 19 Atal Incubation Centres till date. But from a financial perspective, this is just fraction of what the government envisaged while launching the Startup India scheme in 2016. While it is not yet clear how much money has been released to these incubators, an off-the-cuff calculation will show that over the next five years, they will end up getting just about $27 million (or Rs 1.9 billion).

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