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Overseas capital slow down India start-up chase, PM Modi's fund may fall short - After investing billions of dollars into internet start-ups in the last two years, global investors are cutting their investments as dreams of huge online sales are clouded by soaring valuations and still-distant profits.
Though, Prime Minister Narendra Modi has finalized a four-year, $1.5 billion government fund to help startups create jobs, businesses and entrepreneurs fear that it might prove to be very little. Venture capitalists have already tightened their investments as ripples from China's economic slowdown lap around the world.
Venture capital investments in India's start-ups halved to $1.5 billion in fourth-quarter 2015 from July-September, according to a new report by KPMG and CB Insights. Moreover, Bank of America Merrill Lynch has forecast Indian e-commerce will surge to $220 billion by 2025 from about $11 billion last year.
The central government's plan for newly launched firms includes tax breaks on their first 3 years of profits, as well as their investors. However, most tech startups make losses, not profits. They follow a discount-driven business model aimed at generating revenue from consumers that buy and sell products and services, touting growth in 'gross merchandise value' on their platforms as a metric to attract funding.
India's best known e-commerce retailers, Snapdeal and Flipkart, have attracted multinational firms such as Japan's SoftBank Group Corp, Accel Partners and Singapore state investor Temasek Holdings, enthused by growth potential in a country where only 252 million of a population of 1.3 billion people have Internet access. Yet the retailers have notched up huge losses.