The Indo-American Chamber of Commerce (IACC) has suggested setting up of a “Guarantee Fund” for promoting Indo-US ventures in each others’ country, particularly for funding enterprises in small and mid-sized space.
The suggestion has come in the wake of slow progress in the handholding of Small and Medium Enterprises (SMEs) in both countries.
“Shyness on the part of this segment of industry to come together and invest in each other’s country is mostly driven by lack of adequate sources for funding such enterprises. Our experience is that many initiatives had fallen through after making considerable progress initially on account of the financial constraints. Indian banks and multilateral organizations are often back track lending to such enterprises on account of high risk factors. A dedicated guarantee fund, where banks and financial institutions from both countries participate, sharing their resources, will be an ideal platform for ensuring sufficient funds for all segments of industry including SMEs,” says NV Srinivasan, National President, IACC.
IACC is likely to impress upon the government the need for setting up such funds at its forthcoming meeting with the Union Finance Secretary Ashok Lavasa in Mumbai at the IACC’s flagship event – Annual Convention- to be held on 18-19 September. Importantly, the meeting to be attended by over 300 delegates from India and the US is devoting a full session on Funding Growth of India-US enterprises. Delegates to this session include chief executives and private and public banks, industry representatives and academia.
IACC has catalogued a few areas that need immediate attention to channelize the investment of US corporations into India. These include investments in the renewable energy, medical technology, electronics, tourism and hospitality and education. These are segments mostly SME sector has a major stake. Yet, the enterprises operating in these domains are severely hit by lack of funding channels.
IACC’s pitch is that the proposed Guarantee Fund should be similar to that being set up by the Department of Industrial Policy and Promotion (DIPP) for startups. Accessing finance is one of the primary challenges of the startups. The Fund allocated by DIPP for startups are in the vicinity of Rs 2000 crore, which is likely to be revised upwards depending on the genuine demand. The foreign direct policy of the circular 2017 of the Government of India has clearly spelt out provisions for the startups to allow them to tap money from overseas channels. “We need special arrangements for SMEs of India and US to have access to additional sources of funding since the existing banks and institutions do not have the risk appetite to give sufficient exposure to SMEs,” says Srinivasan.
IACC has said that organizations like SIDBI and OPIC (Overseas Private Investment Corporation), a self-sustaining U.S. Government agency, can come together in setting up the fund to be availed by enterprises from both countries.
Importantly, the “Fund of Funds” of Rs 10,000 crore managed by SIDBI has committed a substantial quantum of funds to startups. The same principle can be followed in the case of Indo-US SMEs by allocating a sizeable fund, which can really trigger a faster pace of handholding and technology transfer, says IACC.