The National Seed Fund seeks to support ideation and development of early stage startups whereas the credit guarantee scheme will enable startups to raise easier loans.
“Work on the Cabinet note is in advanced stage,” an official said.
The two schemes are part of a larger roadmap to improve India’s standing on the startup front and the overall vision for the sector will detail the priority areas that need support, the official said.
In its election manifesto in 2019, the Bharatiya Janata Party had promised to create a seed startup fund of Rs 20,000 crore to back early-stage companies and a scheme to provide collateral-free credit of up to Rs 50 lakh for entrepreneurs wherein 50% of the loan amount would be guaranteed towards female entrepreneurs, while 25% will be for male entrepreneurs.
A National Seed Fund was announced in Budget 2020-21 to support ideation and development of early stage startups whereas the credit guarantee scheme will enable startups to raise loans for their business purposes.
The government is keen to attract investments in Indian startups and has already set the ball rolling to evaluate the progress of the Startup India programme.
India ranks 136 on ‘starting a business’ in the World Bank‘s ease of doing business table against an overall rank of 63. The country’s startup sector has been hit hard due to disruptions caused by the Covid-19 pandemic and the subsequent lockdown.
As per apex software and services body Nasscom, 40% of startups have either temporarily halted operations or are in the process of shutting down, with around 70% having cash reserves to last less than three months. The industry has sought help from the government.
At present, startups get support from the government-backed Rs 10,000 crore fund through Small Industries Development Bank of India (Sidbi). The Fund of Funds does not directly invest in startups but provides capital to alternative investment funds (AIF), known as daughter funds, registered with the Securities and Exchange Board of India. These AIFs invest in growing Indian startups through equity and equity-linked instruments. As of February this year, Sidbi had committed Rs 3,123.20 crore to 47 Sebi-registered AIFs.
“The revenue implications of the two schemes are being assessed,” the official added, while declining to give details of the corpus.
Since the launch of the Startup India initiative on January 16, 2016, the DPIIT has recognised 28,979 startups as of March 1, 2020. Of these, 27,137 startups employed around 337,000 people.