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Coronavirus pandemic | Startup lobby seeks Rs 25,000-cr fund, relook at FDI changes

In a letter to commerce minister Piyush Goyal, startups have called for a relook at recent changes made to FDI rules.

April 30, 2020 / 10:30 AM IST

The Startup Association of India has requested the government to set up a Rs 25,000- crore fund to help companies struggling to raise fresh capital due to the slowdown brought by the coronavirus and the lockdown.

In a letter to commerce minister Piyush Goyal, the industry body representing the startup ecosystem of the country also called for a relook at the recent changes made to the foreign direct investment (FDI) guidelines, saying those should not be applied to existing investors.

Moneycontrol has seen a copy of the letter that was written on April 28.

“Indian startups haven’t had the benefit of access to capital due to a lack of domestic venture capital, whereas over 90% of the capital for startups in India is capital from overseas. This pandemic has significantly hurt future business prospects of Indian start-ups which were already reeling under financial pressure,” Startup Association of India chairman Mahendra Swarup said.

The corpus could include Rs 10,000 crore of Fund of Funds lying with SIDBI and Rs 15,000 crore additional funds from the government, said the letter.

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The fund could be registered as an AIF Category 2 fund on the lines of the National Investment Infrastructure Fund. It could raise a few billion US dollars from sovereign funds of friendly nations and also bring in CSR funds from large corporates. The money could be used to boost the Fund of Funds as well as investment in startups directly, it said.

Indian startups are facing two big challenges. One is the loss of investor interest and second, existing business revenues are down due to the nationwide lockdown which is in its sixth week. The outbreak has dealt a big blow to the already slowing Indian economy and start-ups are feeling the heat.

The association, which has more than 2,000 members, is worried that many of its members will not be able to survive this period.

The government’s recent decision to amend foreign investment guidelines mandating all investments coming from neighbouring countries to flow in after its approval has added to their worries.

With a global recession increasingly looking inevitable, the traditional source of capital from the US and Europe will dry out, which makes a strong case for the government to step in.

The government has tightened scrutiny of money flowing in from countries like China, one of the most prolific investors in the startup ecosystem of the country. Ant Financial, Tencent are few of the most active Chinese investors in unicorns in India like Byju’s Paytm, Zomato, Swiggy and others.

The body has also requested a relook into certain aspects of the revised FEMA guidelines like it should not apply to existing investors. Secondly, investments for a minority stake should be allowed to flow unhindered.

If investments from neighbouring nations are less than 49% of the corpus set up outside India, then they should be allowed to invest directly. The body has requested for a free flow of investments from Hong Kong, which is a special administrative region under Chinese control.

These relaxations and support structures were needed for Indian startups as they can transform the business environment and create jobs, the letter said.

Citing Nasscom data, the body said startups had already created between 3.9 lakh and 4.3 lakh jobs and could open up 12.5 lakh jobs by 2025.
Pratik Bhakta
first published: Apr 30, 2020 10:30 am

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