Last week, the government added one more scheme to the bewildering array of branded programmes that it has announced in the 15 months since it came to power. In its nomenclature at least, the India Aspiration Fund, a sub-brand of the Start Up India label, captures the essence of what this regime stands for: a focused, corporate-style strategy to bootstrap India into some sort of superpower standing. But here's the thing about the India Aspiration Fund. Unlike the other branded programmes this one isn't needed.
About the others, it is possible to argue with the way the government is going about them. But no one can quarrel with the raison d'etre of, say, Swachh Bharat Abhiyan and its massive toilet-building programme, or Make in India, to transform India into a manufacturing hub, or Digital India, to use IT as a transformative tool for public service delivery and poverty reduction, Jan Dhan, Smart Cities, USSTAD (a skills development mission) and so on and so forth. All these address some pressing need as far as India's depressing human development indicators are concerned.
What will the India Aspiration Fund do? With an initial corpus of Rs 2,000 crore, it is a "fund of funds" under the Small Industries Development Bank of India (Sidbi) to invest in start-ups. Life Insurance Corporation, that kamdhenu for the government, will be co-investor. "India is witnessing a start-up revolution and to harness the potential of India's innovators and entrepreneurs a vibrant financial ecosystem is essential. IAF will play a vital role in this financial ecosystem," Finance Minister Arun Jaitley intoned at a function in Mumbai.
India Aspiration Fund also comes with an investment committee consisting of hugely respected names in the business, among them T V Mohandas Pai, Kiran Karnik, Saurabh Srivastava, Sanjeev Bhikchandani. Going by Sidbi's website, this fund of funds has already been fairly active. It says the institution has so far contributed to the corpus of 75 venture capital funds "which has catalyzed investment of more than Rs 5,600 crore to more than 472 MSMEs" (micro, small and medium enterprises).
All this sounds impressive but the question is: should the government be getting into the business of venture capital/private equity funding?
For one, there must surely be scores of far more urgent claims on the exchequer. The other branded programmes are all urgent priorities - and Rs 2,000 crore could, for instance, build thousands and thousands of fairly sophisticated toilets that cost between Rs 7,500 and Rs 10,000 apiece.
For another, India is not short of VC and PE funding by any means. Between 2001 and 2014, according to a McKinsey study, more than $103 billion flowed into start-ups - which are basically MSMEs by any other name -- and it has been the steadiest source of finance even after the 2008 global crash. Such funding, it adds, is twice the level of funding seen in China. Every entrepreneur with spare cash - from Ratan Tata downwards - is investing in start-ups of some description or the other.
Besides, it is not as though the Sidbi fund is channelling this cash to, say, funds that invest in ventures that tie into the government's other programmes - toilet building, skill development, digital connectivity and so on. Among Sidbi's "investee companies" is Skymet, the private weather forecasting service that repeatedly embarrasses the Met, and Billdesk, the online payments service. One report says India Aspiration Fund has invested in one Ivy Capital. This company has put money in Reuters Market Light, a marketing platform for farmers, but also a jewellery company, a lingerie maker and a firm that sells made-to-measure clothes to women in the US.
In any case, it is not the "financial ecosystem" that start-ups lack but the operating environment. Any MSME entrepreneur will tell you that it's the basics - poor infrastructure, complex bureaucracy, corruption - that they want the government to fix, not finance. What's more they've been saying so at every possible public forum for decades. The consequences of the poor business environment was tragically in evidence through the early years of this century; when China flooded the market with cheap goods, many Indian MSMEs went under because the costs of commerce here made it impossible for them to compete. In that sense, the Indian Aspiration Fund does not address the basic aspirations of MSME entrepreneurs in India.
It is possible that the government has borrowed the idea from the US, where the government is fairly active in financing small businesses. But it does so in an environment that is so enabling that stories dorm/garage start-ups-to-conglomerates are commonplace there. Given the frustratingly non-enabling environment here, the India Aspiration Fund sounds like just the kind of activity the government should not be in, any more than it should be in airlines, newsprint, insecticides or hotels.
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