January 19, 2016

Start-up Policy: A Flipped Cart

Praveen Chakravarty in this Mint article talks about the Central Government's "India Aspiration Fund", that will invest Rs.10,000 crore taxpayer money to fund start-ups.


"Start-up India is a rightful recognition of the inordinately important role of the venture capital and private equity asset classes in India’s economy. It is also a rightful recognition of the unique needs of these classes of companies that thrive on technology, innovation and scale. Yet, the elephant in Vigyan Bhavan (the venue of the Start-up India event) on Saturday was this lingering question: can the government really do much to foster start-ups?

The government had announced an India Aspiration Fund of Rs.2,500 crore in August. This model was further expanded to Rs.10,000 crore at the Start-up India event. Essentially, the government will take taxpayer funds to invest in other venture capital funds, which will then fund start-ups. Thus, you and I will be indirect investors in venture capital funds and thus start-ups. Would we have done the same with our money, i.e. invest them in VC funds? I doubt it. Because they are at the extreme high end of the risk-reward category of investments. When there is clearly a thriving venture capital industry that funds start-ups, what is the rationale for the government to risk taxpayer funds in this? The arguments posited by the perpetrators and supporters of this initiative are:

(1) Israel, the US and Canada have done it...

(2) There is a lack of seed-stage risk financing in India...

(3) India is over-reliant on foreign venture capital and the government needs to offset this imbalance...

..It is undeniable that India’s start-ups need to be saluted, encouraged and fostered. The Modi government deserves to be lauded for recognizing this and accomplishing it in its characteristic pomp and splendour. However, the temptation to translate that into policy actions by splurging taxpayer funds in venture capital is illogical and a travesty of the “minimum government” promise".




Topic : State Capacity / In : OP-EDS
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