Worried about the slow pace of disbursement of funds under the Startup India scheme, the Department of Industrial Policy and Promotion (DIPP) has been repeatedly asking Small Industries Development Bank of India (SIDBI) for the past one year to consider steps — such as change in the manner funds are disbursed — to increase offtake of funds.
“For the past one year, in all the meetings of the monitoring committee for the Startup India scheme, we have been asking SIDBI to consider taking steps that can increase offtake of funds. The previous monitoring committee meeting took place on December 4 last year where it was suggested that SIDBI should consider changing the manner and methods in which they are disbursing the amount under the scheme, so that a greater offtake can take place,” said a senior government official.
As on March 31 last year, only Rs 33.63 crore was disbursed to 62 startups. Showing improvement in the allocation and disbursement, the DIPP stated on April 6 this year that SIDBI has committed Rs 1,136 crore to 25 venture capital (VC) funds, who, in turn, have invested Rs 569 crore in 120 startups. “A significant amount of disbursement to startups has been done in the past couple of months after feedback was taken from VC funds on lower offtake,” the official added.
However, on March 14 this year, the Parliamentary Standing Committee on Commerce expressed concerns about the “huge gap” that exists between the number of startups that have received funding and tax exemptions and the number of startups that have been officially recognised.
While discussing the Startup India scheme, the committee observed in its report: “A total of 6,981 startups have been recognised by the DIPP as on February 6, 2018, out of which, only 99 startups have been funded and 82 startups have been certified for claiming tax exemptions under the Income Tax Act, 1961.” The DIPP has set targets to facilitate and support 1,000 startups by March 2019.
Asking the DIPP to furnish reasons for the lag in funding recognised startups, the committee suggested the department to “take concerted measures to ensure genuine entrepreneurs are provided all the support to flourish and create jobs”.
Under the scheme, the government in January 2016 announced incentives including a Rs 10,000-crore Fund of Funds (FFS) to be provided by March 2025 by SIDBI, an exemption from paying income tax on profits for three years and an exemption from capital gains tax.
According to the minutes of this scheme’s monitoring committee meeting, which took place on December 4 last year, the “DIPP expressed concern at the under-utilisation and (the) slow pace of disbursement of funds.” The minutes added: “(The) DIPP asked SIDBI to highlight challenges and consider steps (change in the manner of utilisation) that could be taken to allow greater offtake of funds.”
The Startup India campaign was announced by Prime Minister Narendra Modi on August 15, 2015 to develop an ecosystem to galvanise entrepreneurship across the country, through income tax benefits, easy bank financing and lesser compliance burden. The Union Cabinet, on June 22, 2016, formally approved the proposal to establish the Fund of Funds for startups with a corpus of Rs 10,000 crore, with contribution spread over the Fourteenth and the Fifteenth Finance Commission cycles based on progress of implementation and availability of funds.