RBI monetary policy review: Central bank lends policy support to start-ups

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Published: February 3, 2016 1:07:54 AM

To give the start-up community in India a boost, the Reserve Bank of India on Tuesday announced regulatory relaxations supplementing the efforts of the government.

To give the start-up community in India a boost, the Reserve Bank of India on Tuesday announced regulatory relaxations supplementing the efforts of the government. On January 16, 2015 Prime Minister Narendra Modi had announced the 19-point action plan to boost the start-up industry. Governor Raghuram Rajan announced measures that would facilitate fund-raising and make the environment conducive for start-ups.

“There are variety of places where entrepreneurs have come to us and told us that they want some relaxations. We are sort of supporting the start-up process by making it easier to raise money often from abroad but also simplify(ing) the compliance with regulations including putting a lot of the forms online so that they really don’t have to go from pillar to post,” Rajan said in the policy press conference with media.

RBI will allow receipt of consideration in case transfer of ownership on deferred basis through escrow arrangement or indemnity arrangement for a period up to a period of 18 months.

In order to make documentation and reporting procedures simple, RBI will allow electronic reporting thereby eliminating the need of physical documentation from February 8, 2016. RBI will enable online submission of A2 form for outward remittances. The central bank has also put a penalty structure in place in case delayed reporting of Foreign Direct Investments. In addition, there are certain provisions under consideration which include access to loan under External Commercial Borrowing , issue of FDI instruments such as convertible loan instruments, and streamlining of overseas investments in start-ups.

One of the largest barriers restricting the growth and development of start-ups in India is lack of funding from foreign venture capitalists. According to a report by CB Insights and KPMG International, venture capitalists funding in India dropped by $ 600 million during October-December in 2015 to $ 1.51 billion.

RBI’s initiatives are expected to help start-ups to raise funds from foreign venture capitalists irrespective of the sector they are operating in. Under the Start-up India action plan, the government will exempt entrepreneurs and VCs from capital gains taxes on sales of company’s assets.

Harish HV, partner at Grant Thornton India LLP said, “initiatives about ease of doing business are a very welcome step. We look forward to further relaxations around convertible notes as promised. These steps together with the Start-up action plan and more initiatives expected from the Ministry of Corporate Affairs and of course the budget, should help the cause of the Stay In India and creating value in India.”

Amarjeet Singh, partner – tax at KPMG in India said, “proposals like permitting start up to access ECB, issuance of innovative FDI instruments etc, which are under consideration , if goes through will improve investor participation and also help start-ups to raise capital at low cost.”

At the Start-up India, Stand-Up India event on January 16, 2016, entrepreneurs shared their grievances when filing approval for the business with the government and the regulatory roadblocks in the way but the Prime Minister’s Start-up India action plan announced later that evening and recent initiatives from the central bank are expected to relieve some pressure off their shoulders and provide the much needs boost to the start-up industry in India.

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