A Planning Commission committee has recommended setting up of structures like the Software Technology Parks of India (STPI) to enable single-window clearances, tax breaks and easy exits for start-ups. Apart from setting up a Rs 5,000-crore sovereign ‘fund of funds’, it also recommended the creation of new sources of capital for domestic venture capitalists such as pension funds, insurance companies, financial institutions, etc through the automatic route.
In its report submitted to Finance Minister P Chidambaram on Monday, the committee, headed by former revenue secretary Sunil Mitra, pitched for easy investment norms by venture capitalists in early stage businesses. It said the government and regulatory bodies should offer fiscal as well as non-fiscal incentives for angel investors and venture capital firms for promoting small and medium businesses.
The panel proposed to define angel investors as an individual investing less than Rs 5 crore or a group investing less than Rs 10 crore in an unlisted entity at the seed stage. It suggested that the seed funding limit be increased to Rs 1 crore, against a cap of Rs 25 lakh for most schemes currently.
Firms based in STPI gain several fiscal and administrative concessions, such as 100 per cent foreign equity ownership, no corporate income tax for 10 years, duty-free import of capital equipment, accelerated depreciation and free repatriation of capital.
“Similar incentives could be provided to duly registered and accredited incubators. As these privately run incubators flourish, it will spark innovation and boost entrepreneurial activity across India,” it said.
The panel said investments by the ‘fund of funds’ could be limited to the lower range of Rs 50 crore or 50 per cent of the total corpus. This will ensure that the anchor investments by the government are increased through a multiplier effect and eventually investments of up to Rs 25,000 crore could be made in early stage ventures.
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The committee has also recommended the creation of bodies such as Indian Standards Institute across growing industries to provide quality certification to new ventures. It asked the government to provide Rs 1,000 crore to 10 top academic institutions to set up Rs 100 crore on-campus incubators such as the ones at Harvard and Stanford.
It said the number of incubators in the country should be increased from 120 at present to 1,000 in the next decade, covering most of tier-I and tier-II cities.
“For rapid scale up of the incubators and enhancement of services, participation of the private sector will be critical — whether through PPP or other appropriate models, including for-profit models,” it said.
The panel, which also comprised MSME secretary, Sidbi chairman Nasscom founder Saurabh Srivastava and Cannan Partners managing director Alok Mittal among others, said venture capital investments have the capacity to generate Rs 10 lakh crore revenue and create four crore jobs in the next decade.