Thiruvananthapuram

27°C

Light Rain

Enter word or phrase

Look for articles in

Last Updated Saturday July 20 2019 08:02 PM IST

RBI plans to give relaxations to startups

Text Size
Your form is submitted successfully.

Recipient's Mail:*

( For more than one recipient, type addresses seperated by comma )

Your Name:*

Your E-mail ID:*

Your Comment:

Enter the letters from image :

Raghuram Rajan Raghuram Rajan. File photo

Mumbai: In a move to help the fledgling breed of Indian entrepreneurs, the Reserve Bank of India (RBI) said it is planning to ease the flow of funds to startups by allowing them to get foreign venture capital without any curbs and enable easier transfer of shares between residents or non-resident investors.

RBI Governor Raghuram Rajan said that the aim is to simplify movement of capital and do away with regulatory impediments hampering their growth, to create more ‘unicorns’ or companies with billion-dollar valuations.

The announcement follows an ambitious Start-up India programme unveiled by Prime Minister Narendra Modi.

In the sixth bi-monthly policy statement of this fiscal, the RBI announced simplification of rules and regulations to ensure that an entrepreneur does not have to run from “pillar to post.”

“What we have tried is to create an enabling framework to allow them to receive funds in a variety of forms with appropriate contracts,” Rajan said.

He cited the difficulties faced by entrepreneurs, starting right from the complicated contracts for fund raising, which are not allowed under the Foreign Exchange Management Act (FEMA).

“Can we make it possible for those contracts to actually be undertaken? There have been a variety of cases when the entrepreneurs have come to us and told us that they want some relaxations,” Rajan said, adding that the changes will be incorporated into policymaking.

After promising to work for the startup community in the policy statement, the RBI followed it up with a detailed document enlisting the changes which it proposes to bring.

The Governor cited difficulties entrepreneurs face in case of a sell-off of the business, and the need to stretch the validity of the time for which the amount is held in an escrow account, and mooted for it to be stretched to 18 months.

“Lot of venture capital funds like to write contracts, so that they preserve control and get greater control if things go sour. Plain vanilla equity contracts do not work. What we want to do is that enable the range of such contracts that are possible so that our home-grown start-ups don’t find doing these kind of things difficult or onerous,” he said.

He also added that the liberalisation of norms will not create any problems for the Indian banks as they have a small exposure to the start-ups.

RBI will also look at the issuance of innovative FDI instruments like convertible notes by start-ups and streamlining their overseas investment operations, the central said in its detailed statement.

Rajan said that the measures will create an enabling framework for receiving foreign venture capital, differing contractual structures embedded in investment instruments, deferring receipt of considerations for transfer of ownership, facilities for escrow arrangements and simplification of documentation and reporting procedures.

The central bank said that it has already created a “dedicated mailbox” to provide assistance and guidance to the start-up sector.

There have been sustained efforts to encourage the start-up ecosystem in the country in the recent past.

Capital markets regulator SEBI has come up with norms for listing of start-ups after a series of meetings with stakeholders.

The government’s ‘Startup India’ programme also includes a slew of incentives to boost start-up businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs 10,000-crore corpus to fund them.

The government has also announced a self-certification scheme in respect of nine labour and environment laws, while there will be no inspection during the first three years of launch of the venture.

Also, a liberalised patent regime is being brought to help start-up businesses register patents, for which the fee will be slashed by 80 per cent.

India, which has the third-highest number of startups globally, will also support the ventures by removing the criteria of experience and turnover for bagging government procurement contracts.

Profits earned by start-ups will be exempt from payment of income tax during the first three years of business.

To boost financing, a 20 per cent tax on capital gains made on investments by entrepreneurs after selling of assets as well as government-recognised venture capitalists will also be exempt.

(With agency inputs)

Your form is submitted successfully.

Recipient's Mail:*

( For more than one recipient, type addresses seperated by comma )

Your Name:*

Your E-mail ID:*

Your Comment:

Enter the letters from image :

Disclaimer

The comments posted here/below/in the given space are not on behalf of Manorama. The person posting the comment will be in sole ownership of its responsibility. According to the central government's IT rules, obscene or offensive statement made against a person, religion, community or nation is a punishable offense, and legal action would be taken against people who indulge in such activities.

Email ID:

User Name:

User Name:

News Letter News Alert
News Letter News Alert