To convert innovation into commerce, particularly in farm, water, healthcare and education, the government has in principle decided to set up a $1 billion (about Rs 5,000 crore) venture fund for new services and products that promise to bring about a see- change in the lives of poor.

Sam Pitroda, adviser to the prime minister on public information, infrastructure and innovation, said on Monday the fund would foster to foster innovation across sectors and states.

“We have set up a National Innovation Centre that will oversee similar state centres and 100 sectoral houses,” Pitroda told the Grid Week Asia summit in Mumbai.

“We need to provide money to those who have ideas but no seed capital,” he said, adding that initially government would provide seed capital of Rs 100 crore for the fund.

The initial corpus for the fund would be Rs 500 crore, to be scaled up gradually to $1 billion. It would be a private fund in which the government stake would be around 20 per cent, he said.

He said the government was already in talks with the private lending arm of the World Bank, International Finance Corporation, for raising money. Some British agencies and a few others, besides some banks in India, were interested too.

Indian School of Business in Hyderabad and Infosys said the initiative would act as a catalyst for young entrepreneurs to innovate.

“It is a great initiative,” Infosys’ co-founder and executive co-chairman, S Gopalakrishnan, said.

The executive director of the Wadhwani centre for entrepreneurship development at the Indian School of Business, Krishna Tanuku, said the fund should aim to be a catalyst for innovation

Madras IIT director Bhaskar Ramamurthi said such a fund was absolutely needed, specially in the farm sector. “Innovation in rural areas is slowly growing and there is a requirement for a whole lot of things ranging from energy, housing, recycling to agriculture,” he said, with a word of caution that rules should not hamper growth as it government had never been good at venture funding.

The Bangalore- based New Silk Route growth capital partner Jacob Kurien said: “The devil is in the detail. The challenge is about final decision making. Unless the private sector is involved in decision- making there is not likely to be much interest.”

The government investment in the fund is widely expected to be announced by finance minister Pranab Mukherjee in the coming budget.

Tanuku said that though the fund would fill the funding gap for entrepreneurs to an extent, it was not the sole solution. More important was the creation of a mechanism where research outcomes were actually turned into marketable products and the way this was leveraged.

Nasscom president Som Mittal, welcoming the move, said that while India had private equities and venture capitalists to fund larger companies, the world over the model of government funding start-up companies was prevalent. “Innovation in information technology is clearly happening and in many cases it has already started such as IT in education, agriculture, energy,” he said.

The managing partner at Seedfund, an early- stage investor, Pravin Gandhi, said that the idea was good but the challenge was in its execution.

Both Gandhi and Gopalakrishnan felt $1 billion was too big an amount for such a fund. On the otehrhand, Videocon group chairman Venugopal Dhoot said it was too small.

Joe Silva, chairman of Tanaji Malusure City (TMC), focusing on construction of affordable housing, said the fund would enhance the skill of delivery at a lower cost.

The solutions have to be technologically driven, Silva said. Introduction of new technology would also widen local employment. All developers focused on affordable housing would benefit from the fund.

(With inputs from Ronendra Singh from New Delhi, Yasir Pitalwala and Jharna Majumdar from Mumbai, Shyamala Seetharaman from Chennai, C Sivakumar and Sameer Bakshi from Bangalore and B Krishna Mohan from Hyderabad)

krsudaman@mydigitalfc.com