It’s time to give RBI governor Raghuram Rajan a pat on his back. Rajan, who has been all over the news since he assumed office for his charismatic personality, quirky dialogues and exceptional line of work, has recently revealed India’s central bank’s plans to ease rules that may result in luring more overseas investors into the nation’s booming startup industry.
According to a statement recently posted on RBI’s official website, overseas investors will now be allowed to sell their stakes in Indian startups to local companies. This move by the RBI will end up giving the foreign venture capital funds an easier exit route. Furthermore, the startups are now allowed to file reports over the Internet. In addition to all this, the regulator also eased the rules governing share transfer transactions.
It is being expected that more the options for venture capital funds to profit from their investments or exit struggling companies, more they will be lured into India, Asia’s third-largest economy that’s experiencing an Internet startup boom currently. Rajan’s this move can be seen backing PM Narendra Modi’s 100-billion-rupee ($1.5 billion) fund, which was set up so as to encourage nation’s startup businesses and government pledges to provide tax breaks.
According to various existing VCs, this move by the RBI could prove to be game changer for the entire Indian startup industry. According to them, this was a big pain point for all the foreign investors and if the RBI is successful in easing this out, it is surely going to lure in bucketloads of money.
Under rules currently existing, the shares held by foreign investors are subjected to more restrictions than those held by local investors.
Further, it isn’t all happy-go-licky for the local investors too. A lack of tax breaks results in curbing local investors involvement and encourages India based entrepreneurs to domicile their companies in countries abroad that have lower levies on offer. Whether it’s E-commerce giant Flipkart.com or online grocer Grofers.com, they are the prime examples of Indian startups that have relocated their parent entities to a foreign land (Singapore).
The Indian startup industry currently has its eyes locked on Feb. 29, the day on which Finance Minister Arun Jaitley will present his annual budget 2016. Everyone is anxious to see if the Indian government will ease the taxes relating to capital gains on startup investments. This is important because, any easing of those rules will result in exempting levies on gains made after holding for a year or more, which in return could have a huge impact. If capital-gains tax rules are relaxed, one will not only see a lot more money coming from India but also from outside of the country.