RBI plays ball with govt, to simplify rules for start-ups

Rajan 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.

PTI| Updated: Feb 02, 2016, 19:04 PM IST
RBI plays ball with govt, to simplify rules for start-ups

Mumbai: Underscoring the need to boost the start-up ecosystem, the Reserve Bank Tuesday said it will simplify rules and regulations which impede their growth and ensure that an entrepreneur does not have to run from "pillar to post" to start a business.

"We want to simplify the process...we are supporting the start-up process by making it easier to raise money, often from abroad, but also simplify the compliance with regulations including putting lot of forms online so that they don't have to go from pillar to post," RBI Governor Raghuram Rajan told reporters.

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.

"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," he said, adding that the changes will be incorporated into policymaking, starting with a document to be released shortly.

He also spoke of the difficulties faced by an entrepreneur during sale of a company which entails an

elongated period of receiving the funds.

"During that time, the amount is escrowed. Can we extend the time for which the amount is escrowed so that sales can take place easily," Rajan said.

In a detailed statement issued later, the RBI said in case of transfer of ownership of a start-up, the escrow arrangement can be extended till 18 months.

It will also work for enabling start-up enterprises to receive foreign venture capital investment and also "explicitly enabling transfer of shares from foreign venture capital investors" to others, the statement said.

It will also look at the issuance of innovative FDI instruments like convertible notes by start-ups and streamlining their overseas investment operations.

In the sixth bi-monthly policy statement, Rajan said 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".

In the detailed statement issued later, the RBI said 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 has also launched the 'Start Up India' campaign.

Last month, Prime Minister Narendra Modi unveiled 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.

He also announced a self-certification scheme in respect of nine labour and environment laws and said 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 percent.

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

Modi said 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 percent tax on capital gains made on investments by entrepreneurs after selling of assets as well as government-recognised venture capitalists will also be exempt.