Due to the ongoing COVID-19 pandemic, startup companies all across India are facing several problems because of the extended lockdown and new FDI rules. In consequence, the Startup Association of Indian has urged the Commerce Ministry and DPIIT – the department for Promotion of Industry and Internal Trade, to help them overcome liquidity crises. They also asked for some exemptions for startups from new FDI Rules.
The new FDI Rules limit direct investments from China and other neighboring countries.
The Chinese investments in India have increased from $1.6 billion in 2014 to around $8 billion in 2017. More than 234 funding deals were done with the Chinese investors. Hence, without a doubt, China significantly invests in the Indian Startups funding. As a result, the new FDI rules and regulations raise questions about their impacts and other finer details.
In 2018 various entrepreneurs like MMT’s Deep Kalra, Info Edge’s Sanjeev Bikchandani, Dinesh Aggarwal of Indiamart, and much more collectively formed the Startup Association of India. The letter of this firm highlights the fact that the new FDI rules will impact numerous investment houses in Hong Kong.
The Global Fund of Funds has a strong presence in Hong Kong. Thus it will severely affect the investors who wish to invest in Indian Startups.
In consequence, the association sought the exemptions of investments coming from Hong kong from government approvals.
The association made the following requests concerning the new FDI Rules:
- Not applicable to the capital calls on already existing investors in ventures where they have already made their investments.
- No impact on any subsequent investment by an already existing shareholder in a startup.
- Allowance of minority stake investments from neighboring countries in the startups, including exceptions from Pakistan and Bangladesh to certain extents.
- Exclusion of investments coming via investment vehicles in a case where the total assets under management of the funds are less than 49% from the neighboring countries.
- Exclusion of investments that are solely financial without any controls in the startup.
Nakul Saxena, the director-public policy of iSPIRT, said that the startup companies are eyeing for benefits from the authorities considering the effect on jobs, which further will be fruitful for the overall system. He also said that the government must provide benefits such as salary, GST refunds, and much more.