Announcing the sixth bi-monthly monetary policy review, Dr. Raghuram Rajan, Governor, said, “In keeping with the government’s Start-up India initiative, the Reserve Bank will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of start-ups.”
The initiatives also consists facilitating ‘escrow arrangements’ and simplification of documentation and reporting procedures for start-ups. Besides, the Indian central bank aims to make it easy for start-ups to raise foreign capital and operate in India. Start-ups across sectors will find it easy to receive foreign venture capital investments and also easily transfer shares from foreign venture capital investors to other residents and non-residents.
Suchit Punnose, Founder, Red Ribbon Advisory Services, believes that RBI’s announcement to create an eco-system that is conducive for the growth of start-ups is an excellent move towards enabling a friendly start-up eco system for India.
“With ideas budding in each and every part of the country, India will see more and more entrepreneurs to come to the forefront and take the required risks to run an enterprise. Time consuming procedures like obtaining licenses, reporting procedures and raising funds required for running an enterprise will now be eased through the conducive investment framework announced by RBI. These moves are poised to give a fillip to the start-up sector and improve the sentiment towards government procedures,” commented Punnose.
The RBI is also planning to permit start-ups to raise rupee denominated loans from foreigners and allow them to create innovative convertible instruments to raise funds. In addition, it aims to enable start-ups to issue shares without cash payment through ‘sweat equity’ or other legitimate payment owned by the company, as long as the payment does not fall into the purview of the Foreign Exchange Management Act (FEMA).
According to Himanshu Meena – Founder & CEO, Parsel, the RBI’s initiative to improve the ease of doing business for start-ups in the country is extremely refreshing. It will help the entire start-up eco-system in setting up a new enterprise at a much faster rate than usual.
Sharing his thoughts on RBI’s initiative, Meena said, “Dr. Raghuram Rajan’s decision of 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 will help start-ups like Parsel to gain easy access to capital.”
Rajan informed that RBI is preparing a detailed statement on start-ups to be issued separately. He also announced tax rebates for the first three years, exemptions on capital gains, a corpus fund of Rs.10,000 crore and a mobile app to register start-ups in a day among others.
Commenting on the RBI’s initiative, Manish Kumar, Founder & CEO, Grex, said, “It is good to see RBI Governor Dr. Raghuram Rajan echoing the same view as Prime Minister i.e. to help improve the ‘ease of doing business’ for start-ups in the country and contribute to an ecosystem that is conducive for the growth. These measures will create an enabling framework for receiving foreign venture capital. Start-ups have only been used to equity as a mode of capital and we believe RBI initiative will bring in the concept of venture debt which is miserably missing in the ecosystem.”
The central government is expected to bring out more incentives to promote entrepreneurship and start-ups in the forthcoming budget. In keeping with the Government’s Start-up India initiative, the Reserve Bank will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of start-ups.
These 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.
With the PM Modi’s start-up India event to boost start-up businesses and with RBI support the start-up sector is poised to get a great push. India will soon see more and more entrepreneurs with the improving start-up environment,” concluded Meena.
