The Ministry of Information Technology (MeitY) is fast-tracking its ambitious Rs 5,000 crore fund-of-funds targeted at deploying much-needed domestic capital into India’s software products ecosystem, as the government looks to reopen the economy in a phased manner after a two-month lockdown.
MeitY officials are expected to approach the finance ministry as early as next week with a detailed proposal for the Software Product Development Fund (SPDF), according to three sources aware of the developments.
The SPDF was first announced in the National Policy on Software Products, which was approved by the Union cabinet in February last year.
The Covid-19 pandemic-induced lockdown effectively shut down Asia’s third-largest economy, but with its gradual reopening under strict guidelines ministry officials are now speeding up the fine tuning of the fund and are expected to have a cabinet note ready by early-July.
The ministry is also considering tapping the country’s bellwether information technology services companies, including TCS, Infosys and Wipro, apart from large family offices, to serve as limited partners or investors in the fund, sources told ET.
They indicated that there was a preference towards raising domestic or Rupee capital for the proposed Rs 5,000 crore fund-of-funds.
“If companies like Infosys and TCS show interest in software product development, which carries good valuation, then we would be delighted to have them on board,” said a senior government official. “Of course, Rupee capital is more than welcome in the fund, compared to foreign capital.”
While ministry officials are expected to formally approach corporates by end-June or early-July, back channel talks between the parties have already been initiated.
“We are targeting that after cabinet approval, by the last quarter of this financial year we should be able to disburse something,” the official said on condition of anonymity.
Sources also indicated that MeitY may look at third parties to manage the fund, with the likes of SBI Funds Management, which manages SBI Mutual Funds, and HDFC AMC being thrown into the mix as potential fund managers for SPDF.
Infosys declined to comment, while MeitY, Wipro, SBI and HDFC did not respond to ET’s emails till the time of going to press.
MeitY’s current plan is to deploy the Rs 5,000 crore corpus into at least 50 daughter funds that would comprise of Sebi-registered Category 1 and Category 2 Alternative Investment Funds, by the last quarter of the current financial year. These daughter funds would, in turn, back startups in the software products sector.
There is also a proposal to build a two-tiered fund, which would leverage additional capital to the tune of a further Rs 20,000 crore at the daughter fund level, to de-risk the investment by backing startups in other sectors as well.
According to government and industry estimates, SPDF has a potential to create Rs 1,25,000 crore in value for India’s software products sector.
“We are looking at deploying 35% of the daughter funds into software product companies and the rest could be in other sectors, maybe even into IT services. This would de-risk the capital, because software products may not succeed to the extent of services,” added the government official. “Services have low, but assured returns. Products have bull returns, but there is a high risk and there is a lengthy period of returns.”
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