MeitY Gears Up To Present INR 5K Cr Software Development Fund To FM

Almost a year after the Software Product Development Fund (SPDF) was approved under the National Policy on Software Products, the Ministry of Information Technology (MeitY) is working on taking the action plan to the finance ministry.

An Economic Times report citing sources said that MeitY officials are expected to approach the finance ministry by next week with a detailed proposal for the SPDF. Officials also plan to have Cabinet-noted ready by early-July.

The report added that MeitY plans to deploy the INR 5K Cr 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 AIFs will then invest in startups in the software products sector.

The officials also propose to build another 2-tiered fund of INR 20K Cr at the second-level, to de-risk the investment by backing startups in other sectors as well. The idea is to deploy 35% of the fund into software product companies and the rest could be in other sectors, maybe even into IT services. This is being proposed to de-risk the investment believing that software products may not succeed to the extent of services.

IT Minister Ravi Shankar Prasad had said during the approval of the policy, “A cluster-based ecosystem will be developed in the country, where software products will be developed. For this, INR 5K Cr software product development fund (SPDF) will be set up. The Indian government will put in INR 1K Cr and the remaining will come from the industry.”

The ministry may also tie-up with tech companies like TCS, Infosys and Wipro, besides large family offices, to serve as limited partners or investors in the fund. The officials also want to raise additional capital from domestic investors. 

The ministry plans to be able to disburse some funds by the last quarter of the financial year after Cabinet approval. The fund managers may include SBI Funds Management, which manages SBI Mutual Funds and HDFC AMC among others.

The policy aims to provide a level-playing-field to Indian software product companies and facilitate ease of doing business, they added. The intent of the policy is to create an enabling environment for innovation, Research and Development (R&D), IP creation and protection, as well as create a talent pool for the industry. Through the policy, the government aims to create a sustainable Indian software products industry, driven by IP.

The policy aims to align with other government initiatives such as Startup India, Make in India and Digital India, Skill India etc so as to create Indian Software products Industry of $70 bn -$80 Bn with direct and indirect employment of 3.5 Mn by 2025.