Small is beautiful, says Jaitley

The NDA government has recognised the power of the small and its potential to grow big if nurtured well. The budget has allocated Rs 10,000 crore to create a conducive eco-system for venture capital for micro, small and medium enterprises (MSME). The government hopes that this fund will act as a catalyst to attract private capital by providing equity, quasi-equity, soft loans and other risk capital for startups.

Announcing the plan, the finance minister said “small and medium enterprise form the backbone of our economy. They account for a large part of our industrial output and employment”.

Sateesh Andra, managing partner at Ventureast, says the announcement will make India’s early stage startup ecosystem as vibrant as Silicon Valley and China. “We will see many more disruptive product startups targeting SE Asia and global markets getting funded. Early stage product focused VCs like us are enthused by the move,” said Andra.

“This a clear change in the mindset. While the previous governments have been recognising the importance of big enterprises, this step shows a clear change in the mindset in favour of small businesses,’ said Rehan Yar Khan, member of Indian Angel Network.

“This is the first time that we are seeing this sort of allocation of Rs 10,000 crore. Also the mention of the word ‘risk capital’ indicates that the government is cognisant with the risk and success rate in startups,” said Pranav Suresh, chief executive officer of Startup Village.

However, as the taste of the pudding is in the eating, the industry is waiting to see how the implementation of the proposal is done.

“Probably organisations like Small Industries Development Bank of India will be funding venture capital funds or making direct investments. There are many challenges in the implementation,” said Khan.

The government has set up a panel with representatives from the finance and MSME ministries, and RBI to give concrete suggestions in three months.

The definition of MSME itself will be reviewed to provide for a higher capital ceiling. “Redefining MSME and increasing the capital ceiling for the definition will help banks lend more to the companies,” Khan said.

The government initiative is not limited to financing. A programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery will also be put in place.

An entrepreneur-friendly legal bankruptcy framework will also be developed for small and medium enterprises to enable easy exits. Nationwide “district level incubation and accelerator programme” also would be taken up, the budget said.

(With inputs from B Krishna Mohan in Hyderabad)

sangeethag@mydigitalfc.com

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