To help facilitate Prime Minister Narendra Modi s vision of a Digital India, the Reserve Bank of India (RBI) has announced that startups can now raise up to $3 million in a financial year via external commercial borrowings (ECBs). Startups in India will be permitted to raise the overseas funds in rupees or any other convertible foreign currency, or a combination of both. The move, hailed by entrepreneurs, will boost innovation and promote job creation. Also Read - WhatsApp not authorized to go live with UPI full scale operations, RBI tells Supreme CourtAlso Read - BYJU's Early Learn app takes kindergarten classes online using Disney characters and computer-vision framework
The startup culture in the India is getting noticed across the globe and recently, Chinese investors announced an investment of a whopping $50 million in as many as six startups. With international interest in indigenous product ideas, investors believe startups in India will continue to disrupt traditional business models. Earlier this year, RBI allowed startups to open foreign currency accounts abroad to credit foreign exchange earnings from exports and sales made by them. Getting investments in foreign currency will help Indian startups with an easy conversion at reduced costs other than injecting more jobs and competition in the industry. Also Read - Cryptocurrency ban lifted in India; Here is everything that we know
India has the third-largest number of startups globally. In January, Prime Minister Narendra Modi had unveiled a slew of incentives for them including tax holiday, inspector raj-free regime, capital gains tax exemption and Rs 10,000 crore corpus to provide funds. Government has also relaxed procurement norms for them.
Statement on developmental and regulatory policies announced by RBI said startups have the potential to play a significant role in economic growth and job creation by spurring innovation and injecting competition. ALSO READ: Startups in India now joining the augmented reality and virtual reality bandwagon
“Taking into account the available funding channels from overseas for startups, the RBI, in consultation with the Government of India, will allow such entities to raise ECB up to USD 3 million or equivalent per financial year either in INR or in any convertible foreign currency or a combination of both,” it said. It will issue guidelines in this regard by month-end.
A National Credit Guarantee Trust Company is being envisaged with a budgetary allocation of Rs 500 crore per year for the next four years.The statement further said that RBI will review guidelines for Pre-paid Payment Instruments (PPI). Currently about 47 non-bank entities and 45 banks operate the payment systems for PPI.
In view of significant developments in the payments space using newer technologies, products and players, RBI said that it has been decided to undertake a comprehensive review of the guidelines for issuance and operations of PPIs. ALSO READ: Indian startups receive funding of around $50 million by Chinese investors
The revised guidelines will be put in place by December end. “Accordingly, the receipt and processing of fresh applications have been temporarily suspended,” the central bank said.
It further said that final guidelines on Interest Rate Options will be issued by end-October 2016. Earlier, the RBI had placed the report of the Working Group on Introduction of Interest Rate Options on its website in February 2016 and had sought comments.