A Planning Commission appointed committee has recommended creation of a Rs 5,000-crore Sovereign ‘Fund of Funds’ to aid early stage venture funds. The committee has also suggested creating new source of capital for domestic venture capital.
The committee submitted its report with a presentation to Finance Minister P. Chidambaram and Deputy Chairman of the Planning Commission Montek Singh Ahluwalia. The recommendations of the Committee aim to create a ‘Vibrant Entrepreneurial Ecosystem in India.’
The committee has clubbed its recommendations under five themes.
These include Catalytic Government Policy and Regulatory Framework, Easy Access to Equity Capital and Debt, Businesses as Entrepreneurial Hubs, Promotion of Entrepreneurship over Careerism and Adequate & Effective Collaboration Forums.
Under the theme of easy access to equity capital and debt, the committee prescribes creation of a Rs 5,000-crore fund to act as an anchor investor in a number of Alternative Investment Funds (AIFs). These AIFs will raise capital from other sources — both domestic and foreign — thereby creating a multiplier effect.
These could result in capital flow of up to Rs 25,000 crore over the next 10 years, the report said.
The committee felt that permitting pension funds and provident funds to invest a small part of their corpus in early stage venture funds could significantly 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.
As a part of enabling policy framework by the Government and the regulators, the committee suggests that the limits on investment and turnover thresholds for seed stage and early stage venture capital need to be indexed to inflation.
There should be an effort to set up at least 1,000 incubators in tier I and II cities in a decade’s time from the present 120.
The Committee has emphasised on ease of exit for angel investors. This can be done by providing appropriate fiscal incentive on capital gains to Angel and other early stage investors.
There is need to simplify IPO requirements including permitting overseas listing without requirement of domestic listing and exclusion of such investors from lock-in provisions.
The report recommends the establishment of a National Entrepreneurship Mission to drive the long-term agenda of inclusive growth from the entrepreneurial perspective.
It identifies a number of initiatives in the form of “low hanging fruits” which would promote the development of a healthy Angel and Venture Capital industry, and also presents a set of longer term recommendations for creating a vibrant entrepreneurial ecosystem.