STARTUPS
DIPP to move cabinet note on guarantee fund for startups
DIPP to move cabinet note on guarantee fund for startups
NEW DELHI: Keen to ease the flow of loans to startups, the Department of Industrial Policy and Promotion (DIPP) will move a cabinet note on a credit guarantee fund for budding entrepreneurs.

The government will use the fund to stand guarantee for loans given to startups. The fund was announced by Prime Minister Narendra Modi as part of the Startup India action plan in January 2016.

Accessing capital is one of the primary challenges faced by startups. The fund managed by the DIPP has a corpus of Rs 2,000 crore and will enable greater financial support to startups.

“We have finalised the details of how the fund has to be managed. A cabinet note will be moved soon,” a senior government official said. Only startups recognised and certified by the DIPP can access the credit guarantee fund. So far, the industry department has recognised 2,865 applicants and 60 of them have been approved for a tax holiday.

Startups, once certified by the government, can avail of income-tax exemption for three consecutive assessment years in a block of seven years. A ‘fund of funds’ of Rs 10,000 crore managed by Small Industries Development Bank of India has committed Rs 623 crore to alternative investment funds and financed 67 startups.

The idea behind the fund was to leverage the institutional credit structure to reach out to underserved sectors, including SC/ST and women entrepreneurs. Each startup will be eligible for loans up to Rs 5 crore without collateral under the credit guarantee scheme. The foreign direct investment policy circular 2017 includes for the first time provisions for startups in line with the government’s push to the sector.
It has spelt out provisions that allow startups to raise money from overseas from venture capital funds and others through instruments such as convertible notes.
The startups will have to obtain government approval in sectors where FDI is not under automatic route to issue convertible notes. The government recently broadened the definition of startups to include “scalability of business model with potential of employment generation or wealth creation.”

ET View: Create An Ecosystem
The move may make sense given lacklustre credit off-take, but we need to setup an ecosystem to fund startups. Banks may not have necessary risk appetite or may lack domain expertise. Instead, we need to encourage angel investors to come up 
forearly-stage funding, with I-T and other incentives. It is true that since June, 2016, CBDT has notified tax exemptions for resident angel investors funding startups. But reports say onerous conditions need to be met and only 2-5% of startups qualify. This must change.,

[“Source-timesofindia”]

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