PC: UMKM
To strengthen the Indian startup ecosystem, Finance Minister Nirmala Sitharaman announced the setting up of a new Fund of Funds worth ₹10,000 crore in her budget speech on February 1, 2025. This is in keeping with her efforts to increase funding of startups at a time when funding has reduced over the past year.
A New Funding Era
The newly proposed Fund of Funds is designed to pool resources to invest in various venture capital and private equity funds, rather than directly funding individual startups. This approach allows for a diversified investment strategy, enabling a broader reach and support for emerging businesses. The announcement comes at a crucial time when funding for Indian startups saw a 66% decline in value from January to November 2023, dropping to $6.9 billion compared to $20.2 billion during the same period in 2022.
The government plans to restore investor confidence and fuel the growth of startups, which form the backbone of India’s economy. It is in perfect sync with the Atmanirbhar Bharat vision of the government, emphasizing innovation and entrepreneurship.
Enhanced Credit Access
Besides the Fund of Funds, Sitharaman announced improved credit access for startups. The government will provide loans of ₹10 crore to ₹20 crore, with the guarantee fee having been drastically cut down to a mere 1%. This financial support will be made available to 27 key sectors that can drive growth in the Indian economy. By reducing the barriers of access to capital, the government hopes to arm startups with a better opportunity to scale up and contribute more effectively to the economy.
Deep Tech Focus
As part of the larger scheme, Finance Minister Sitharaman also spoke of the Deep Tech Fund of Funds being explored to catalyze the next generation of startups. The deep technology thrust will be to focus on supporting innovative sectors which rely on the application of advanced technologies, such as artificial intelligence, machine learning, and biotechnology.
Industry Reactions and Expectations
Industry leaders and entrepreneurs have warmly welcomed the announcement. The new funding provisions will be able to attract more venture capital investments and encourage start-ups with ambitious projects without the fear of financial strain on these projects. It would be seen as one of the key steps taken by the government to bridge the funding gap the world has seen startups face lately.
Prime Minister Narendra Modi praised the budget, terming it a milestone in India’s development journey. He emphasized that this budget is not about just numbers but reflects the aspirations of 140 crore Indians, hoping to fulfill the dreams of the youth and make an environment friendly for innovation and growth.
In conclusion, the introduction of the ₹10,000 crore Fund of Funds is a pivotal moment for the Indian startup ecosystem. By improving access to credit and addressing challenges in funding, the government has laid a good foundation for sustainable growth and innovation. As India moves towards becoming a global hub for startups, these initiatives will play a vital role in nurturing entrepreneurship and promoting economic development over the coming years.
