Department of Electronics and Information Technology (DEITY)'s ambitious proposal to pick up a stake in a $100-million private equity (PE) fund has been put on the backburner due to some objections by the Planning Commission.
The plan panel, which has recently become wary of all government investments, wants more than one player to be evaluated before the final approval. Floated by global PE firm Walden International, the fund planned to invest in electronics chip design start-ups. The IT ministry proposed to have 15 per cent stake in the fund.
According to an official in the know, the Planning Commission feels there should be at least two bids before it invests in a PE fund.
"There is no problem with contribution of the government's share, but there should be more interested players," said a senior Planning Commission official. The panel's suggestions would be conveyed to the high-powered committee chaired by R Chidambaram, principal scientific advisor to the Prime Minister, added the official, who did not want to be identified.
A DEITY official said the department had received the Planning Commission's observations and had also responded to those.
Lack of an agreement between the two parties has delayed the fund, the idea for which was mooted almost a year ago. This doesn't auger well for the country's reputation internationally, as India which is trying to boost its domestic electronics manufacturing industry by seeking investment's from global majors.
Over the past two years, the department has unveiled various policies to incentivise domestic manufacturing under the National Policy on Electronics, 2011. The Electronic Development Fund was supposed to be one of the key initiatives of the policy, under which the department invited global funds to invest in the country with the government participating through a stake of up to 50 per cent in it.
The logic behind partnering global funds instead of going solo is that electronics research and development work is highly complex and risky. "The government may have found it hard to fund private companies as it is difficult to say which will succeed and which will not," said another senior official with DEITY. "We don't have people such as Vinod Khosla in the government, so we need to leverage the expertise of the professional fund managers," the official added.
Lip Bu Tan, chairman and co-founder of Walden International, had told The Economic Times in an interview in October that it was looking for companies with innovative solutions for the low-power consumption space. "There are strong laws to protect such IP in India," he had said. Walden manages total assets of $2 billion and, in the past, the fund had invested in mid-tier software services firm Mindtree and business process outsourcing firm Quatrro.
Hemant Kanakia, one of the managing partners of the Walden India Fund, said the company's proposal was under consideration with the Indian government. "We are very optimistic that it will go through."
According to experts, the innovation around technology products in the country is gaining momentum, with several start-ups coming up with path-breaking technologies. However, many of these start-ups, which operate in the unconventional space, are finding it difficult to get the initial support funding.
Sharad Sharma, former Yahoo! India R&D head, who co-founded Indian Software Products Industry Roundtable (iSpirt), a think-tank for software product companies, said that everywhere else in the world, early-stage investing to jump-start the product eco-system had received public money. "There is a lot of opportunity for new start-ups, which are looking for technology disruption. Also, there is a very large market in India and technology is on the nation's agenda. All these reasons serve as motivations for products innovation in the country," he said.
Earlier this year, IT industry body Nasscom had launched an initiative to support 10,000 start-ups in the country. The initiative, which has entered its second phase, received 4,000 applications for funding and acceleration of which 332 were short-listed and 80 were supported by the programme. Business Standard had reported on Monday that social networking giant Facebook was in talks to acquire Bangalore-based product start-up Little Eye Labs, making it Facebook's first acquisition of a product firm in India.
It will also be a first for iSpirt, which has facilitated the deal through its M&A Connect programme, which helps Indian product companies find global buyers. Little Eye Labs builds performance analysis and monitoring tools that identify and fix performance problems for Android app developers.
