RBI moves in to rescue startup India program

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Start up India

Instead of the Union Finance Ministry (UFM), it’s the Reserve Bank of India that is seemed to be involved in fire fighting to rescue the Prime Minister’s prestigious “start up India, stand up India” program. Launched on January 16 this year, the scheme has run aground, seriously jeopardizing NaMo’s plan to generate hundreds of thousands of jobs before the general elections of 2019. This is despite the Prime Minister lining up a four-year $1.5 billion government fund, and a string of tax breaks for both the companies and their investors.

Consider the following facts. According to CB Insights and KPMG, venture capital inflows in India’s start-ups nearly halved to $1.5 billion in fourth-quarter 2015 from July-September. Despite a pick up in startups formation, fund raising rules and regulations have remained so cumbersome and complicated, thanks to the suspicious mindset of UFM, that some of India’s biggest start-ups such as e-commerce marketplace Flipkart have switched their legal headquarters to Singapore.

To simplify the problems, the Reserve Bank of India (RBI) plans to let start-ups receive foreign venture capital investments without any restrictions and enable transfer of shares from them to other residents or non-residents, making it easier for the fledging firms to access capital. The RBI also said it was considering other measures including allowing the start-ups, most of them in the technology sector, to access offshore rupee loans, amid concerns over a slowdown in private funding into the sector. The central bank is also considering whether to allow them to issue instruments like convertible notes to foreigners, it said in a statement on Tuesday.

Bank of America Merrill Lynch has forecast that Indian e-commerce will surge to $220 billion by 2025 from about a measly $11 billion in 2015, as more people gain Internet access currently available to only 252 million of India’s 1.3 billion populations.

Written by: M K Shukla (Editor)

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