Lok Sabha Question No. 2211 (UNSTARRED), answered on 2015-12-11
Subject: Funding from Private Sector
Ministry: FINANCE
Asked by: MUTHAMSETTI SRINIVASA RAO (AVNTHI), MURALI MOHAN MAGANTI

- (a)
- Yes, Sir.
- (b) The  Expert  Committee  on  Innovation  and  Entrepreneurship  under  the Chairmanship of Prof. Tarun Khanna, Director, South Asia Institute, Harvard University,  USA has submitted its report in October, 2015.  The Committee has made wide ranging recommendations for short term (where action can be taken  relatively  quickly  to  deliver  almost  immediate  payoffs),  Medium  term (that can be addressed within a 5-7 year time frame) and Long term, which are  likely  to  have  long  gestation  periods,  but  will  lead  to  a  profound transformation  in  the  entrepreneurial  fabric  of  the  country.  A  gist  of  the recommendations of the Expert Committee is at Annexure-I .
- (c)& (d) One of the recommendations of the Expert Committee is as under:

'1% of corporate profit could be directed towards research labs in universities and/  or  industry-university  collaborative  research.  The  government  could provide some tax benefits against this. Monitoring of this rule should focus not only on the absolute amount channelled into universities, but also on the efficiency  of  spending,  that  is,  it  needs  to  be  output-rather  than  inputoriented. The idea here is  that  universities  become  the breeding ground for

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA

## UNSTARRED QUESTION NO. 2211

TO BE ANSWERED ON 11 th  DECEMBER, 2015/ AGRAHAYANA 20, 1937 (SAKA)

## FUNDING FROM PRIVATE SECTOR

## QUESTION

## 2211: SHRI MUTHAMSETTI SRINIVASA RAO (AVANTHI): SHRI M. MURALI MOHAN

Will the Minister of FINANCE be pleased to state:

- (a) whether the panel headed by Prof. Tarun Khanna has submitted its report to review the existing initiative aimed at promoting investors and entrepreneurship in India;
- (b) if so, the details thereof and the recommendations made therein;
- (c) whether the panel suggests funding from the private sector for Research and Development  project  and  create  a  Fund  of  Funds  to  seed  the  early  stage  of venture funds with the corpus of Rs. 5000 crore; and
- (d) if so, the details thereof and action taken by the Government thereon?

## ANSWER MINISTER OF STATE IN THE MINISTRY OF FINANCE

## (SHRI JAYANT SINHA)

new technology/ ideas that can be used by the corporate sector. Firms would implicitly  be  outsourcing  R&D  financing  development  of  products/  services that can be bought by them. In that sense, this financing would be perceived as absolutely core and fundamental to a firm's operations, rather than as a CSR-related activity. Though the actual development of R&D may take some time,  beginning  the  involvement  of  the  corporate  sector  in  the  financing  of universities could be achieved relatively quickly.'

## The Expert Committee has also recommended as under:

'Government  could  establish  a  "fund-of-funds  (FOF)"  to  seed  other  early stage venture funds, with a corpus of Rs. 5000 crore. This FOF will invest as an anchor investor in a number of Alternative Investment Funds (AIF). These AIFs  will  raise  capital  from  other  sources  -  domestic  and  foreign  -  thereby creating  a  multiplier  effect.  This  could  result  in  capital  flow  of  up  to  Rs. 25,000 crore over the next 10 years. The India Opportunities Venture Fund, set up under SIDBI by the Government of India should also play this role.'

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## Gist of the recommendations of the Expert Committee on Innovations and Entrepreneurship

The Recommendations of the Expert Committee on Innovation and Entrepreneurship,  constituted  by  NITI  Aayog  under  the  Chairmanship  of  Prof. Tarun  Khanna,  to  accelerate  the  entrepreneurship  agenda  in  the  country,  have been categorized in to short, medium, and long-term recommendations.

## (A) Short Term - Providing Adequate Support to Early-Stage Ventures

1. Utilisation of AIM Funds: The AIM budget should be used entirely towards introducing  competitions  to  solve  pressing  economic  and  social  problems  (12 Grand prizes/Grand Challenges annually) through the Incentivize Innovation in India (i3) programme for finding out ultra-low-cost solutions.
2. Harnessing  Corporate  Funds  to  Finance  R&D  by (i)  Incentivizing  the Corporates to invest a part of their profits in research labs in universities and/or industry-university collaborative research and towards corporate venture capital funds,  for  the  purposes  of  investment  in  start-ups  and/or  incubators;  and  (ii) Introducing  a clause for directing 5% of the value of all contracts with foreign defense companies, to fund R&D in universities.
3. Improving the Efficiency of Incubators by (i) Increasing public investment in incubators and roping in private sector funding; (ii) Creating Virtual Incubators; (iii) Keeping Incubators Up  to Date; (iv) Linking Funding  of Incubators with an Institutionalized Annual Ranking; (v) Introducing Specialized Sector-based  Incubation  Services;  and  (vi)  Strengthening  Linkage  between  the Corporate Sector and Incubators.
4. Utilisation  of  SETU  Funds: To  jumpstart  innovation,  Rs.  500  crore  from SETU funds should be used for upgrading the existing incubators in the country and the remaining Rs. 500 crores for setting up 500 Tinkering Labs across the country for introducing a 'Make in Universities' program with one 3D printer per institute and trained people.
5. Fostering  a  National  Entrepreneurship  &  Innovation  Movement by  (i) Instituting  a  National  Entrepreneurs'  Day;  (ii)  Creation  of  National  Action Brigade- on the lines of the 'Teach for India' or the National Cadet Corps (NCC); (iii) Harnessing the NRI talent pool; and (iv) Introducing 'faculty entrepreneurial fellowships' to encourage professors to be stakeholders/partners of the entrepreneurial and incubation eco-systems in universities.

## (B) Medium Term  - Creating an Enabling Environment for Innovation

1. Embracing the Platform Mindset: by (i)  Creating  digital  platforms, similar to Aadhaar to inspire innovation & entrepreneurship (ii) Building sector-specific searchable digital platforms like: Health Care records, Pensions, Insurance, and Education; and (iii) Digitization of government processes. AIM may  be empowered  to  appoint  India's  Chief  Information  Officer  to  manage  the  Digital Platforms programme.
2. Reforming the Education System and Upskilling Workers: by adopting a multi-layered approach which include: Reorienting school curricula; Annual assessment of schools and faculty; Providing easy access to entrepreneurship education courses at secondary and tertiary levels; Focusing on technologybased solutions to education; and Opening up the market to global education providers.

3. Strengthening  the  Intellectual  Property  (IP)  Rights  Regime including Setting  up  of  Dedicated  IP  Courts  to  improve  the  efficiency  and  speed  in  IP judgement;  Increasing the number of Patent Examiners; and Establishment of National Virtual IP Platform containing  a database of all the resolved IP cases in India, as well as details of those under litigation.
4. Improving the Ease of Doing Business through a series of measures which include:  (i)  Digitization  of  government  permits;  (ii)  Creation  of  a  Central  ID  for enterprises; (iii) Revisiting the Companies Act to distinguish between closely held private companies, public companies, and publicly listed companies; (iv) Revisiting Section 56 of the Income Tax Act that has greatly impacted fair market valuation  norms  on  angel  investments;  (v)  Moving  service  tax  back  to  actuals rather  than  accruals;  (vi)  Improving  access  to  capital;  (vii)  Labour  market reforms; (viii) Creation of an online nationwide real estate registry- Registration for all real-estate transactions should be made mandatory within 48 hours, with strict  penalties  for  non-compliance;    (ix)  Creation  of  an  AIM  Entrepreneurship Index for measuring entrepreneurial activity in India; (x) Creation of a separate regulatory category for new business; and (xi) Creating an enabling environment for social enterprise by involving the corporate sector to fund social enterprise.
3. (C) Longer Term: Addressing the Cultural Context: To expedite cultural changes, the Expert Committee has made the following recommendations:
1. Attach Entrepreneurship to Large Scale Economic and Social Programs like:  'Swacch Bharat' to encourage and promote social entrepreneurs focused on the areas of cleanliness, hygiene and civic responsibility.
2. Promote New, High-Potential Sectors via the 'Make in India' Campaign set-up incentive structures to develop a few chosen high-potential industries as part of the 'Make in India' initiative.
3. Foster  and  encourage  a  Culture  of  Coordination  and  Collaboration between  ministries,  departments,  enterprises  and  incubator  cells  across  the country.
4. Redefine Success: Innovation-centred organisations within the government system must be allowed to pursue projects and experiments that are high risk and  may  fail.    Different  measures  of  accountability  and  success  must  be outlined.
5. Make Entrepreneurship Part of the Social-inclusion Agenda Bringing in more women, dalits, rural population and the urban underprivileged into the fold of new Indian entrepreneurs and innovators.

## (D) Proposed Structure of the AIM

The Expert Committee has recommended establishment of a 'Not for Profit' 'Section 8' Company  for implementation of the Atal Innovation Mission with Vice Chairman, NITI Aayog as the Chairman, four independent  directors from Industry, Civil  Society,  Academia  and  Judiciary.  In  addition,  there  will  be  seven  more Directors  (Secretaries  to  GOI  of  various  Ministries/Departments)  on  the  Board  of the Company.

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