Easier norms for start-ups so that they don’t have to go from pillar-to-post: Raghuram Rajan

Rajan spoke about the difficulties faced by entrepreneurs, starting right from the complicated contracts for fund raising, which are not allowed under the Foreign Exchange Management Act.

The Reserve Bank of India has proposed several regulatory changes, including cross-border transactions, for start-up firms “so that they don’t have to go from pillar-to-post”.

The central bank has said start-ups, irrespective of the sector in which they are engaged, should receive foreign venture capital investment and also get the facility to transfer shares from foreign VC investors to other residents or non-residents. They should be permitted, in the case of transfer of ownership of a start-up enterprises, receipt of the consideration amount on a deferred basis as also enabling escrow arrangement or indemnity arrangement up to a period of 18 months, the RBI said. It is in talks with the Centre for bringing new sops for start-ups.

“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 said.

It has proposed enabling of online submission of A2 forms for outward remittances on the basis of the form alone or with documents upload or submission, depending on the nature of remittance. It has recommended simplifying the process for dealing with delayed reporting of FDI related transaction by building a penalty structure into the norms itself. “The notifications/circulars under FEMA … will be issued shortly,” it said. The RBI said it is in talks with the Centre on permitting start-ups to access rupee loans under ECB framework with relaxations in respect of eligible lenders, issuance of innovative FDI instruments like convertible notes by start-ups and streamlining of overseas investment operations for the start-up enterprises. Issue of shares without cash payment through sweat equity or against any legitimate payment owed by the company remittance of which does not require any permission under FEMA and collection of payments by start-ups on behalf of their subsidiaries abroad are under consideration, it said.

Rajan spoke about 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.

Welcoming the RBI steps, Amarjeet Singh, Partner – Tax, KPMG, said, “The initiatives on permitting foreign venture capital investment into start-up enterprises will certainly attract more investment. Proposals like permitting start up to access ECB, issuance of innovative FDI instruments etc. which are under consideration of the RBI will improve investor participation and also helps start-ups to raise capital at low cost.”