Entrepreneurship in India, over the next decade, has the potential to create 2500 successful high growth ventures, with combined revenue of over Rs. 10 lakh crore (USD 180 billion), and to generate 10 million direct & 20-30 million indirect jobs. Consequently, powering India’s economic progress with –
- Inclusive economic development
- Innovative products/services for India’s young population
- India as a hub for frugal innovation
- Attracting investment flows and creating substantial wealth
This cycle has been set in motion over past few years with emergence of first generation entrepreneurs, increasing availability of capital, and strengthening of the ecosystem.
The Committee’s recommendations include –
Facilitate investments: Recognition and promotion of early-stage investments and early stage investors such as angel investors, venture and seed funds, and attract investors through development of appropriate policy measures and fiscal incentives.
Enhance and scale-up venture incubation programs: Grow incubators from the current 120 number to over a 1000 by 2022, beyond IITs, IIMs etc. Enhance the limit of investing in an incubatee company from Rs.25 lacs to Rs.1 crores. Encourage Private Sector participation in incubation centers.
Ease entrepreneurial processes: Ease regulations and processes for setting up, operating, and exiting a business that are time consuming and complex. Governments and their agencies can at all levels – central, state, and local – reduce transaction time and costs. For example, permit self-regulation and self-compliance for businesses with turnover of less than Rs. 25 crore, and stringent penalties for prevention of potential misuse.
Ease exits for investors: Develop policy framework for easier exits to encourage early stage investments by Angels and others investors including appropriate fiscal incentive on capital gains. MoF could also allow companies registered in India to make an initial public offer on exchanges outside India without or before listing in India, as was the case earlier.
Remove regulatory hurdles that inhibit domestic investments: Permit pension funds, insurance funds and provident funds to invest a small part of their corpus in early-stage venture funds to improve capital flows. Special incentives such as tax credits could be provided to HNIs, corporates and institutions that invest in early stage venture funds or to incubators and to angel investors. Allow NRI investment in Venture Capital Fund through automatic route.
Government could establish a “fund-of-funds (FOF)” to seed other early stage venture funds: With a corpus of Rs. 5,000 crore, this FOF will invest as an anchor investor, in a number of Alternative Investment Funds.
Develop and scale-up debt offerings: Debt is critical to meeting working capital requirements. Traditional debt providers, however, do not lend without collateral. As such, early stage ventures cannot meet lender requirements. Therefore, expand the lender base by incentivizing banks to offer SIDBI-like schemes to early stage ventures. Banks to create capacity and capability for lending to such ventures.
Set up collaborative forums for mentorship and networking: Industry associations and chambers of commerce to set up mechanisms for mentoring relationships between established businesses and early stage ventures.