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Place of Effective Management (POEM) of a business

Finance minister had announced during budget 2016 that place of effective management (POEM) will determine if a company is resident in India or not. Accordingly, this was notified in Finance ACT 2016 as under.

Finance Bill

The details of what will determine the place of business rules was not decided in the Finance Act 2016. The POEM provisions was supposed to become effective from April 2017. The detailed guidelines of what rules and conditions will determine the POEM has been issued by CBDT on 24 January 2017.

Ever since the announcement in 2016 there were many apprehensions on POEM, especially in SaaS companies.

In order to clear this apprehension a PolicyHacks session of iSPIRT was conducted.

The video discussion on POEM attended by Girish Rowjee, Founder CEO of Greytrip; Mrigank, Mrigank Tripathi,  Founder CEO of Qustn Technologies; Sanjay Khan Nagra, of Khaitan and Co.; Avinash Raghava and Sudhir Singh, iSPIRT  is given below.

What does the above POEM ruling incorporate in finance bill imply?

In simple terms the place of effective management in above act means a place where key management or commercial decisions that are necessary for the conduct of the business of an entity are made, in substance. This implies Indian resident status on a company will apply even when the entity is incorporated outside India, if the place of effective management is proven to be in India.

The guidelines issued on 24th January 2017 by CBDT will be used to determine if a business of non-Indian entity or a subsidiary of Indian entity will fall under the place of business rules or not. The Guide lines can be accessed here.

POEM is an internationally recognised test for determination of residence of a company incorporated in a foreign jurisdiction.

Why this regulation has been brought in?

POEM require Indian firms with overseas subsidiaries or foreign companies in India to pay local taxes based on where the business is effectively controlled.

The main intention of this regulation is to capture the income in shell companies incorporated outside India that are held by resident Indians with a basic intention of retaining the income outside India.

The regulation is not intended to discourage valid Indian businesses to setup an entity outside India or operate in global markets.

Does it impact Software sector?

It is very common for the India Software companies to open an office in foreign geography, many times as a subsidiary of Indian company and sometimes a new entity with mixed local and Indian management. Hence, the POEM has been worrying entrepreneurs in this sector. For SaaS segment, it is very normal to have a foreign entity, either for reasons of funding or market penetration.

As mentioned above, for a valid global business the POEM will not be a hurdle. Businesses, having global operation but not retaining income in foreign companies (i.e repatriating profits to Indian company) through authorised route and after complying with other regulations, POEM will not be a a worrying factor.

There may be a very few Software Companies, who may need to be concerned, to pass the test of POEM. Any determination of the POEM will depend upon the facts and circumstances of a given case. The POEM concept is one of substance over form. If POEM is established to be in India for businesses operating outside India, they will be taxed in India.

It is not possible to generalize the impact of POEM on Software sector or illustrate few used cases. Whether a business operating outside India will get classified as POEM can only be ascertained after detailed examination.

Exemption for turnover less than 50 Crore

There is good news for startups as per the Press release accessible here, it has been decided that the POEM guidelines shall not apply to companies having turnover or gross receipts of Rs. 50 crore or less in a financial year.

This was not clear before video discussion and doubts were expressed during discussion, as this rule has not been described in the guideline circular of CBDT but has been mentioned in the press release of same date from CBDT.

Hence, we can expect that the rule of less than 50 crore income shall be embedded in income tax rules to be notified later.

Other salient features

  1. The provision would be effective from 1st April 2017 and will apply to Assessment Year 2017-18 and subsequent assessment years.
  2. The Assessing Officer (AO) shall, before initiating any proceedings for holding a company incorporated outside India, on the basis of its POEM, as being resident in India, seek prior approval of the Principal Commissioner or the Commissioner, as the case may be.
  3. Further, in case the AO proposes to hold a company incorporated outside India, on the basis of its POEM, as being resident in India then any such finding shall be given by the AO after seeking prior approval of the collegium of three members consisting of the Principal Commissioners or the Commissioners, as the case may be, to be constituted by the Principal Chief Commissioner of the region concerned, in this regard. The collegium so constituted shall provide an opportunity of being heard to the company before issuing any directions in the matter.

The point 2 and 3 mentioned above will ascertain that there is no arbitrary discretion exercised by Assessing officers on ground.

The Guidelines issued can be accessed here, also provides examples that explains when an active business outside India will be treated as Indian business based on POEM. These examples do not explain each and every case.

Also the exemption of 50 Crore is neither given in Finance Act or in the Guidelines but mentioned in press release.

CBDT may therefore issue further circulars to clarify these positions.

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A Framework For Building SaaS Products That Don’t Churn

When you say “reduce SaaS churn”, most people will immediately imagine tactics like drip email campaigns, great onboarding, customer marketing, gamification and automated alerts when users show signs of leaving. But this post is not about tactics. This post recognizes that users are smarter than any of the cute tricks we can come up with, and it attempts to get to the core of why there are some products that business users keep paying for, and others they discard.

A Framework For Building SaaS Products That Don’t Churn

If you’re a founder or product manager, I’ll encourage you to think deeply about this stuff, versus thinking about your next “growth hack”.

Products on which company processes are based

There are products on which organizational functions are dependent and processes are built. These are usually CRMs, Marketing Automation, HR software and Support software. The defining features are

  • they’re used by decision makers for reporting purposes and are often used to track teams’ KPIs and goals
  • they’re used to run day-to-day functions of the team and organization, for example, the process of applying for and approving employee leaves, or changing the stage of a sales opportunity
  • some people are logged in to the system during their entire working day
  • others log in once in a while to complete certain tasks
  • the system collects and retains valuable data that companies are not comfortable losing

Some observations about these products are

  • the sales cycles are usually longer than a month
  • customers will rarely buy these products without first being sure of the processes that are dependent on them
  • they need extensive API support and data integrations, because the data they collect becomes more valuable once combined with other data
  • heavy cross-functional training is required after the sale, and the product takes the blame if a customer org. doesn’t adopt and use it to the best of its capability
  • you need a lot of quality documentation so that you’re not overburdened with support tickets

An important note about products used by decision makers

When I started out at VWO a few years ago, the most important metrics were “free-trial signups” and “paid customers” (about 95% were self-service monthly subscriptions). Back then, Google Analytics (GA) was our most important source of data. We recorded free-trial signups, upgrades to a paid subscription and revenue in GA so it was what we looked at everyday.

In the past couple of years, we’ve started serving more mid-market and enterprise customers. Because of this, a few things have changed:

  • The average deal size has increased from $x00 to $x0000
  • The quality of free-trial signups matters as much as the quantity
  • A large amount of revenue comes from payments made through bank-transfers and other offline methods
  • “New MRR” is now more important than “new customers”

Because of all these changes, Google Analytics isn’t important anymore. Instead, the big decision are made after looking at reports in the CRM and our database, where all lead/deal/customer/revenue data sits. Through this shift I observed how when businesses evolve, the metrics that matter to them change, and this has a domino effect on the SaaS products that fall in and out of favor.

Now here’s another interesting anecdote: VWO has a large number of ecommerce customers. For the majority of these businesses, Google Analytics is the “source of truth”, so we simply had to build an integration with GA. In fact, we once lost a big customer because their VWO test reports didn’t agree with their GA data (completely possible and for good reasons, read this to understand why). The internal VWO champion tried to fight it out and explain the difference to management, but we lost the customer after some time.

So my point is this… it is well worth your while to build capabilities that will be used to make the important decisions, and if that’s not possible, then align your product with the primary reporting tool used by your target market.

Products that give results with minimal effort after initial setup

Some of these are:

  • Lead generation pop-ups, sidebars
  • Landing page software (specially when tied to on-going PPC campaigns or SEO keywords)
  • Retargeting software, like Perfect Audience and AdRoll
  • Exit intent pop-ups, almost always tied to lead generation
  • Personalization and behavioral targeting
  • Email automation like Vero and Intercom

While you’re building a product that keeps producing results with minimal interference, give a thought to how you can add public branding for that little bit of ‘virality’.

It’s also important to note that products tied to performance will quickly be removed when that performance isn’t enough. In this case, the product itself may be great, but it is dependent on something else working. For example, landing page software gets abandoned when the Adwords campaigns it was used for aren’t working out.

Products that monitor and provide reports and alerts on a recurring basis without needing additional effort

Few that come to mind are

  • Mention (social mention tracking, we’ve had it on for at least a couple years… rarely log in but open almost every daily email report)
  • Server Density (server monitoring)
  • SEOKeywordRanking (SEO keyword rank tracking; old school interface and not updated in a long time, but am sure its creator Will Reinhardt doesn’t need to work anymore)

While building your product, talk to users about the data they find most useful and want to look at everyday, or see what parts of your reports are accessed most often, then send that data out as daily/weekly emails. It becomes a part of users’ morning routine to check the emails and note/discuss/alert if something’s going right or wrong.

Products that enable data flow between different systems

Think Zapier, PipeMonk, Jitterbit and Informatica. Admittedly, data integration is more of an enterprise problem, but the good thing is that once put in, they’re very difficult to remove. That’s because they’re usually implemented after someone high enough has identified the need to have all the various data silos talking to each other, and that robust decisions can’t be made without a complete picture of the issue at hand.

Case study: Hubspot
  • Processes are based around the product? Yes, for marketing and sales
  • There’s someone almost always logged in? Yes, marketing
  • Managers use the product to report on performance? Yes, primarily marketing qualified leads, then customers and revenue
  • Product collects and retains valuable data that customers are not comfortable losing? Yes
  • Has components that produce results without needing on-going effort? Yes, lead-gen landing pages, website personalization, automated rule-based emails
  • Components that monitor and alert automatically? Yes, primarily alerts to sales owners about lead activity, and other alerts around social media, monthly/quarterly goals, etc.
  • Components that enable data flow between different systems? A well maintained and documented Salesforce connector, otherwise they have a platform for developers

As you can see, Hubspot is doing pretty well in minimizing churn. It seems to me that would be the case with most large, successful SaaS products. In fact, understanding the reasons why organizations keep paying for products is why large successful software are large and successful, as compared to just large.

I hope you’re able to use this post as a framework to think about what makes products stick, and apply those principles to the products you’re managing or building. Also, do you have anything else I can add to this? For some reason it seems to me the list is incomplete.

Guest Post by Siddharth Deswal, Lead Marketing at VWO.

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Volunteer Hero: Vivek Raghavan

 iSPIRT volunteers build public goods inspired by open-source Linux and Wikipedia. Our volunteers are selfless, committed and conflict-free. They are animated by a burning cause.
 
One such cause is about creating technology platforms that will help make India a Product Nation. Building a successful country-scale technology platform is hard. And doing this as an open and public platform is even more challenging. It takes talent, sweat, and toil to do this.
 
Vivek-RaghavanVivek Raghavan for instance. He stepped in as a part-time volunteer to help build Aadhaar back in late-2010. Soon he was working as a full-time volunteer. Had he known that he would be volunteering full-time even after so many years, he might not have taken the plunge! In fact, two years ago, he gave up. After all, it’s not easy to work in a government system to make things happen. But, his sense of mission sprinkled with some emotional appeal from other iSPIRT volunteers had him back in action again.
 
We have many full-time volunteers in iSPIRT who take a year or two to give back to the ecosystem. But few have done it for six years! Here is a successful entrepreneur – with two notable exits in the US – waking up every morning to make the world better for all of us. His example inspires other volunteers. He kindles the fire that keeps iSPIRT running.
 
Vivek’s uncommon ownership and determination make him an iSPIRT volunteer hero.
 
Guest post by Pramod Varma & Sanjay Jain
 
“True heroism is remarkably sober, very undramatic. It is not the urge to surpass all others at whatever cost, but the urge to serve others at whatever cost.”  – Arthur Ashe

 

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How we built iSPIRT from scratch, with nothing except a lot of spirit. #iSPIRTturns4

I missed the 4th anniversary celebrations of iSPIRT in Bangalore today as my father has been unwell for the last couple of weeks and I have been avoiding travel. I thought it will be good to refresh my memory by reading up some of the old emails and also share the journey of the 9 months of preparation before we officially launched iSPIRT. In the early months we called ourselves as SPIRT — Software Product Industry Roundtable.

iSPIRT officially got launched on 4th Feb 2013 after missing the launch date on 26th January 2013. You should read up the annual letter issued today which talks about the journey, the good progress made and why India has the potential to innovate for the next six billion.

Why I started?

The idea of setting up a product body came about after I ended my ten-year stint with NASSCOM in February 2012, where I was lucky to have worked closely with a number of inspiring individuals in the software product space. While my next career milestone took me back to the corporate world at One97 and I remember Paytm was in the early day: I never knew VSS would make it so BIG one day.

The desire to contribute to the start-up and software product eco-system in the country never left me. This desire in me forced me to reach out to Vishnu Dusad, MD of Nucleus Software. I met him at his office and he encouraged me to stay focussed and he will put all efforts behind convincing and engaging with people like Bharat Goenka of Tally & Sharad Sharmawho chaired the NASSCOM Product Council.

While I was at One97, I had a candid conversation (of leaving One97. I was just 3 months in the system) with Vijay Shekhar Sharma about my passion as I didn’t want to be unfair to a friend who had offered me a job when I needed. I still remember the brief conversation that I had with Vijay where he said “You go ahead and follow your passion, I will support you in whatever you do, be it on the rolls of One97 or outside”. I think that was a big commitment, I know very few people who can do things like that. He said — don’t worry about sustaining yourself, I will take care of that, you go and follow your dream.

I still thank him as he was the first person who freed me and became the angel for the Product mission.

How the key people came together

Vishnu was able to convince Bharat & Sharad that it was time to focus on creating something unique for the Software Product companies in India. We also engaged with Pari Natarajan of Zinnov as he had a good understanding of the ecosystem and also knew some of the gaps that had to be filled. I remember, we did few calls and everything would stop for few weeks as people got busy. I had to again nudge people so that they start contributing back. Many a times, I thought it was difficult to pull something together, but something inside me didn’t allow me to stop.

We always were trying to identify more people, but early on someone had suggested that it is better to start with a small team and then keep adding more people. I remember in one of the calls, how Bharat had motivated me by giving some valuable advice. I remember I had written it down somewhere, but it was more on the lines of when you have a dream and when you discover your mission, it will fill you with enthusiasm and a burning desire to work on it. It was always good to hear Bharat on how much passionate he was for India and for Software Products from India.

Once everyone was aligned, we virtually laid the foundation for SPIRT on 15th August 2012 where Bharat & Sharad met at the Tally office and Vishnu and I joined on the call from Delhi. I came officially on board after that.

How we ideated on the mission and the core beliefs…

After lot of back and forth and around 8–10 calls, we arrived at the Draft 1 of what SPIRT should be focussing on. Once in a while, we would also get an outsider to share their perspective and we got advice on how to create another trade body on software products. I’m glad we did not go ahead with the trade-body concept and created a think tank thanks to Sharad.

Also, since most of the conversations were done on phone, i don’t have any photographs of the team in the early days. Normally, startups always show their photographs from the garages 🙂

Sharing what Pari of Zinnov had put together on. Since beginning, we had lot of confusion on the name, as you can see, SPIRT became SPIRIT 🙂

In one of the initial meetings, it was decided that we will be taking the 3 pillar approach — Policy, Market Catalyst & Playbooks. This was articulated beautifully by Sharad and what SPIRT would be focussing on..

Over the period of time, Bharat, Sharad and Vishnu crystallized the vision and we put together this document, although I remember lot of efforts went behind this.

Launch of ProductNation — the community for Product Founders

Once the core team had decided launch the mission, I was assigned the task to build the community for software products. I remember i had proposed few names to Sharad out of which ProductNation was picked up. The other two names which were close were ProductoNomy.com & ProductsFrom.In

The other list which got dropped was:

TheIndusValley.com & theindusvalley.in are available (this is inspired from The Silicon Valley).

The ProductNation Blog was launched in the first week of September 2012 and I was fortunate that many product folks came and supported this by writing blogs, doing interviews and few meetups.

One of the early versions of the ProductNation newsletters

This is a writeup that I had done at that time

Productnation aims to be a forum for these individuals to contribute their points of view and opinions and energize the software product industry with their passion for enhancing the product eco-system. The citizens of this great “nation” bring experience, diversity, information, knowledge and cut across caste, creed, race and color! In a nutshell, Productnation.in is by the product guys, for the product guys.

The initial name was SPIRT and why we changed to iSPIRT.

Sharad came up with the name of SPIRT which stands for Software Product Industry Roundtable. I guess after few weeks, Sharad came up with this beautiful analogy of why a think-tank positioning is better than the trade body approach. He had all his facts & data ready with him and others also agreed and we were all set.We tried the following domains early

  • spirt.co.in
  • SPIRuT.in (Software Products Industry RoUndTable )

But when we applied for the name at MCA, it got rejected twice and that’s when we thought about adding i for India. Luckily, the third attempt(i was told it is the last attempt) was successful and we got the name registered as Indian Software Product Industry Roundtable Foundation and called it as iSPIRT Foundation. I added the i in the name 🙂

the first version of the iSPIRT website

We again had a tough challenge in getting the domain as someone had registered ispirt.org and few other domains that we wanted. I also wanted to block ispirit.in as many people continued to call us iSPIRT(with the I) in the end.

Joy from WoodApple, a dear friend helped us with the design of the iSPIRT logo…and you can see the wonderful options that he created and I think we picked up the best.

Joy put his heart in designing the logo which is why it came out so well. We didn’t do any iteration, change of colour, style nothing. We just picked one of them.

How the funding happened…

It was clear that iSPIRT will not be a trade body and will not have members. Instead it will be funded by grants and contributions from products firms and individuals. So, we made a list of 30–35 product founders in the month of December 2013 and started to reach out to them.

  • VAS: One97, OnMobile, NetCore
  • SaaS/PaaS: OrangeScape, Zoho (has announced India launch)
  • ERP/CRM: Tally, Ramco, EmployeeWise, Saigun, Impel,
  • Banking — Nucleus, Infrasoft, iCreate
  • Cloud-SI: ABS, Kuliza
  • Digital platforms: Komli, Inmobi
  • Payment platforms: CCavenue, Billdesk, Paytm
  • TECI: MediManage, RedBus

The second list that we had created

  • BI — Manthan, MAIA Intelligence
  • Security/Anti-virus — iViz, EliteCore, K7 Computing, QuickHeal
  • Power — KLG Systel
  • Mass Visibility — Flipkart, Bookmyshow
  • SMB — Gradatim
  • Micro-Banking — EKO,
  • JustDial, Zomato
  • Income Tax — ClearTax, elagaan
  • Retail — Capillary technologies, GoFrugal
Most of my meetings with Sharad would happen at KGA, that was the place where all discussions would be done on the donor funding.

In the first list, I remember we had not even put Freshdesk and today, you can’t do anything in the product eco-system without the Girish’s touch. So happy to see that Girish has built a powerful brand in the last 4 years.

This would be a 20–30 minute led by Sharad on why we are setting up iSPIRT, how it will be different from a trade body model and how they can be part of this movement and support it. To our surprise, most of the founders believed in the story and came forward and donated money to iSPIRT.

Some of the meetings in Bangalore were face to face whereas the meetings in other cities were on phone. The meeting with Naveen of InMobi was pretty good as he gave us lot of insights on what kind of companies/Founders we should be adding in the first 30. The meeting with Shashank of Practo was also insightful as he shared some pain areas of a growing startup and no help he was getting from the eco-system.

The meeting with Pallav happened at Mainland China and Pallav was on full fire, he asked so many tough questions on why we are starting? 🙂

The conversation with Suresh of Orangescape was the easiest as he was one of the early guys who always believed and supported the work been done by us.

I remember collecting 4 lakhs form companies which were in the early stages, but believed so much in the mission, that they did not even question us on the mission or on where the money would be used.

Before the launch, we had 30 founders who had signed up for the mission and came for the first meeting scheduled at Pramati’s office in Bangalore.

The Launch

We had most of the founders who attended the first meeting on 4th Feb, some of them flew from different places to be part of the meeting. You can see some photographs here. It was good to share the mission, what we had planned to do and also how we were planning to execute it.

The Founder Circle at iSPIRT launch on 4th Feb 2013 at Pramati office

Before the launch, Sujit John & Shlipa Phadnis of TOI did a breaking story of the launch by calling it as 30 software product firms break free from Nasscom. This created lot of issue for me & Sharad as both had played an active role in NPC and the EMERGE forum.

The story that I really liked was by Rohin Dharmakumar of Forbes. He did a very balanced story titled “Is iSpirt an Alternative to Nasscom?”

Luckily those days, I think @Sumanthr was not active or he did not notice us and hence we never got some mileage 🙂

When we launched iSPIRT, I remember after few weeks we had Manish Bahl of Forrester questioned that iSPIRT will not be able to make an impact as it is driven by volunteers and doesn’t have a proper secretariat, etc. Based on his blog post, i remember there were couple of stories written about iSPIRT as why we might not be able to do what we have set up as a mission.

Surviving and thriving against all odds!

Initially, some of the leaders also thought that iSPIRT will be an experiment for 1 year, if it worked, we will continue, if it failed, the spirit will just evaporate 🙂 I’m glad that we continued the spirit and good to see the movement has taken off. I can see that now we are a large number of volunteers with many initiatives and happy to be one of the volunteers part of this amazing journey, onwards to many more years of thought leadership as #iSPIRTturns4. It has been an awesome journey!

Special thanks to my friend Sairam who did take a look at the blog inspite of his offsite. 

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2017 iSPIRT Annual Letter

4th-bday-logo (1)

Problem solvers, responsible builders of companies, communities and ecosystems are the foundation for progress and growth of any nation. What drives all of them is a sense of challenge, ownership of problems, allegiance to autonomy, demonstration of personal accountability and the thrill of finding a solution. This energy is fueling a growing product movement in India. iSPIRT is proud to be part of this movement.

Every movement sees itself as a moral enterprise. Our moral imperative is to help lift India out of poverty over the next 20 years (see 2016 Annual Letter). Technology platforms are powering this ambition. These technology platforms have a significant role to play in driving innovation everywhere. Where India stands apart is that it has carefully thought about digital colonization and has boldly decided that its core technology platforms will be public goods.

Since our public technology platforms are open-access, we expect both Indian and Silicon Valley entrepreneurs to participate in building solutions for India’s hard problems. Thus, Indian entrepreneurs will compete with Silicon Valley entrepreneurs not just in the US market, but in the Indian market as well. This inevitable competition will play out in the context of the maturity of the two ecosystems. Hence, unless we develop the Indian technology ecosystem rapidly, our Indian entrepreneurs will not succeed. iSPIRT brings an intensity to building our technology ecosystem that an entrepreneur displays for building her startup.

Four years on, there has been good progress but there is much more to do. We believe that Silicon Valley does an admirable job of innovating for the first billion. India has the potential to innovate for the next six billion.

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A budget for “Digital Economy” sake

Looking deeper in to the budget 2017.

[An immediate official iSPIRT response to the budget was issued as a Press release on 1st FEB 2017. It is placed in media section. You can access it here.]

Budget can’t be construed as main stream policy making exercise. Yet, the policy analysts and experts, track it with utmost seriousness, to understand Government’s thought process in economic policy. Similarly, industry looks in to budget for the sectoral emphasis, allocations that will influence the demand/ supply, reforms and special provisions in the sector. A reminiscent of this in recent period of history is 2012-13 budget speech of then finance minister Pranab Mukherjee, when analysts were counting how many times he used “inclusive growth” as a phrase.

This budget speech was unique in many sense and very tactical. The proposed GST regime, the rigours of demonization and skepticism of coming state elections have all effected this budget. The usual rigmarole by media of comparing prices of commodities and consumer goods from cigarettes, electronics to automobiles is missing.  GST being in pipeline, the indirect tax section, which was usually the largest section of finance bill is almost missing. Hence, allocation of resources and the direct taxes had all the share of FM’s mind in budget. The new item on the block is “Digital economy”.

We have been seeking attention of Government on:

  • increasing domestic demand,
  • promote innovation (Startups)
  • ease of doing business and
  • level playing field for Indian companies.

These four parameters impact our “product nation” focus. Let us briefly analyse how these have been taken care in the budget.

Influencing Domestic Demand function

The usual model of a demand stimulating economic policy has been based on consumption led demand relying mainly on sops and taxes for several years with doses of investment driven demand and growth from time to time.

Increased efficiency, transparency, formalization of economy and investment driven growth are four major thoughts embedded in this budget. The former three are additional determinants of demand function of emerging new economies and a means to achieving developmental agenda. Relying mainly on investment driven demand and growth is very need of the time of low sentiments.

A big measure towards increased efficiency is the change from plan and non-plan classification of expenditure. “This will give us a holistic view of allocations for sectors and ministries. This would facilitate optimal allocation of resources”, said the FM in speech.

The agriculture and rural sector of India cannot be ignored by any Govt. Hence, increased focus in budget on these two important sectors is about inclusive growth, and also in “Digital economy” perspective an attempt to avoid a digital divide.

Both continual emphasis on infrastructure investment and targeting doubling farmer income will provide an investment driven demand push and a consumption driven demand function at higher level.

What is most heartening on domestic demand side for ICT sector is the huge recognition of the “Digital Economy” in the budget. For past some years iSPIRT has been pursuing the “Digital economy” agenda at various forums. There was cautious optimism, but not full acceptability. Thanks to demonetization, “Digital” is now a mainstream concept.

Devoting a full section in his speech on “Digital economy” and dealing with it in ‘direct tax’ provisions speaks a volumes of the mind share this has taken at top in the present Govt. The finance minister stated in his speech, “Promotion of a digital economy is an integral part of Government’s strategy.”

Further, the finance minister said, “Government will consider and work with various stakeholders for early implementation of the interim recommendations of the Committee of Chief Ministers on digital transactions.” This is especially important for iSPIRT as Nandan Nilekani and Sharad Sharma of iSPIRT are special invitees on this committee.

The demand conditions for ICT  sector can best be boosted by increased adoption of the ICT by masses and the businesses, especially the SME businesses. This throws open a number of opportunities for many new startups to emerge and contribute to the development of an ecosystem, friendly to “Software product”.

Following are the notable announcements in the budget on “Digital economy” Steps:

  1. Stepped up the allocation for BharatNet Project to Rs. 10,000 crores in 2017-18.
  2. Targeting high speed broadband connectivity on optical fibre in more than 1,50,000 gram panchayats, with wi-fi hot spots and access to digital services
  3. A “DigiGaon” initiative will be launched to provide tele-medicine, education and skills through digital technology
  4. No transaction above 3 lakh should be permitted in cash.
  5. Limit the cash expenditure allowable as deduction, both for revenue as well as capital expenditure, to Rs. 10,000. Similarly, the limit of cash donation which can be received by a charitable trust is being reduced from Rs. 10,000 to Rs. 2000.
  6. All indirect tax/ duty exempted on miniaturised POS card reader for m-POS, micro ATM standards version 1.5.1, Finger Print Readers/Scanners and Iris Scanners. Also components for manufacture of such devices exempted.
  7. Increased digital transactions will enable small and micro enterprises to access formal credit. Government will encourage SIDBI to refinance credit institutions which provide unsecured loans, at reasonable interest rates, to borrowers based on their transaction history.
  8. To make MSME corporate tax with annual turnover up to 50 crores will be 25%
  9. Presumptive income tax for SME tax payers whose turnover is up to 2 crores reduced from 8% to 6%.
  10. BHIM app with cashback and referral schemes
  11. exemption of service charge on railway bookings,
  12. Aadhaar based smartcards for Senior citizens
  13. Create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems.

Also Government has on mid the ‘indigenous’ in ICT sector. This is reflected by the proposal on metro rail policy for upcoming metro infrastructure across the country. The budget statement reads, “A new Metro Rail Policy will be announced with focus on innovative models of implementation and financing, as well as standardisation and indigenisation of hardware and software.”

Further in related electronic sector, the budget has exponentially increased the allocation for incentive schemes like M-SIPS and Electronic Development Fund (EDF) to 745 crores in 2017-18. The draft National Policy on Software Product already intends to have a synergy with the EDF in PPP model.

This is not enough on “Digital economy” if the Government itself does not implement the “Digital” in its own functions in pervasive manner. The thought process of the Government seems to be aligned in this direction also.

The Finance Minister has said in his speech, ”we are trying to bring in maximum use of Information Technology to remove human contact with assesses as well as to plug tax avoidance.” 

Innovation and Startups

Both innovation and Startups still occupy the thought process at top leadership level. There are signals and clear provisions indicating this.

The income tax exemption window slider for Startups, approved under DIPP, has been increased for 3 years in five years to 3 years in 7 years.

Another new measure is promoting innovation right at secondary education level and in backward areas. “An Innovation Fund for Secondary Education will be created to encourage local innovation for ensuring universal access, gender parity and quality improvement. This will include ICT enabled learning transformation. The focus will be on 3479 educationally backward blocks”, mentions the Finance minister, in budget speech.

Ease of doing business

Ease of doing business is an important topic in PART-B of the content list of budget document. Hence, its importance in thinking process of Government.

iSPIRT has pursued a Stay-in-India-checklist with the Department of Policy and Promotion (DIPP) with an intent to remove various frictions faced by industry in funding, company formation, corporate regulation and taxation issues. A number of steps have been taken up by Government in past one year to sort out these issues.

Announcements like abolition of FIPB, rationalization of taxation (on FPIs, convertible instruments, long term capital gains, etc), lower rate of taxation of 25% for companies with revenue of less than 50 crores, rationalization of labour laws, carry forward of MAT for 15 years, etc. are all in line with the philosophy of iSPIRT’s Stay-in-India checklist.

Among key issues from the Stay-in-India checklist which were expected to be addressed in the budget but have been missed out are angel tax and tax parity between listed and unlisted securities etc.

Level Playing Field

There many ‘level-playing field’ issues that iSPIRT has been taking up with the ministry of finance. Most in taxation domain. None of these issues have been addressed in this budget also e.g. TDS on sale of software, service tax on B2C sales of domestic products.

We hope the proposed National Policy on Software product will crystallize ground for taking up specific ‘Software product’ industry issues with Government in future.

Conclusion

Overall the budget is very encouraging. The main take away for iSPIRT is “Digital economy” recognition. We have to further leverage this in our policy initiatives with different departments in Government and most importantly with MeitY to realize the dream of “Product Nation”.

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RBI allows convertible notes for Startups from foreign sources

As part of policy hacks, we covered the issue of Convertible notes being recognized by Ministry of Company affairs (MCA) in our earlier blog here.

For benefit of users to start, the convertible note has been explained below.

What is a convertible note?

Convertible notes are debt instruments that converts in to equity, at a later date. The lender initially gives a loan with an understanding that he can convert these in to equity. In most cases, this later date is the date of next valuation of the company. If there is no next round of valuation, the company should return the debt back to lender in a fixed time interval.

Convertible notes are quite popular in startup ecosystems like Silicon Valley in USA.

Earlier Ministry of corporate affairs has announced acceptance of the convertible note as a concept for startups through a circular no. G.S.R. 639(E) New Delhi, dated 29th June, 2016.

The announcement by RBI is a development further to the above given MCA circular.

How does new RBI provision help startups?

Foreign investors were allowed, foreign direct investment (FDI) by way of equity and other instruments that were at par with equity e.g. compulsorily convertible preference shares/debentures. Convertibles notes were not allowed till now.

Reserve Bank of India (RBI) notification of 10 January 2017 has amended the Foreign Exchange (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, to allow ‘Startups’ to issue convertible notes to foreign investors.

This opens new avenues for ‘Startups’ to raise funding.

iSPIRT volunteer Sanjay Khan Nagra, covers the RBI announcement on Convertible Notes here in the video below.

The complete circular is given here  on RBI website.

Other provisions in the new RBI notification explained

Convertible note has been defined in the notification

‘Convertible note’ means an instrument issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.

Who can invest and how much?

A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered / incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian startup company for an amount of twenty-five lakh rupees or more in a single tranche.

NRIs may acquire convertible notes on non-repatriation basis in accordance with Schedule 4 of the Principal Regulations.

What is a Startup?

For the purpose of this Regulation, a ‘startup company’ means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 180(E) dated February 17, 2016 issued by the Department of Industrial Policy and Promotion (DIPP) , Ministry of Commerce and Industry.

Govt. approval required for some sectors?

A startup company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government.

Inwards remittance of amount?

A startup company issuing convertible notes to a person resident outside India shall receive the amount of consideration by inward remittance through banking channels or by debit to the NRE / FCNR (B) / Escrow account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.

Provided that an escrow account for the above purpose shall be closed immediately after the requirements are completed or within a period of six months, whichever is earlier. However, in no case continuance of such escrow account shall be permitted beyond a period of six months.

Convertible notes are transferable

A person resident outside India may acquire or transfer, by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the pricing guidelines as prescribed by RBI. Prior approval from the Government shall be obtained for such transfers in case the startup company is engaged in a sector which requires Government approval.

Compliance and reporting

The startup company issuing convertible notes shall be required to furnish reports as prescribed by Reserve Bank.

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Disruption of Chit Funds and the Role of the India Stack.

Disruption of Chit Funds and the Role of the India Stack

Chit Funds are indigenous financial institutions in India. It is a mechanism that combines credit and savings in a single scheme. In a chit fund scheme, a group of individuals come together for a predetermined time period and contribute to a common pool at regular intervals. Every month, up until the end of the tenure of the scheme, the collected pool of money is loaned out internally through a bidding mechanism to the most deserving member. This way, people who are in need of funds and those who want to save are able to meet their requirements. Similar schemes have been known to be popular across the developing world, generally referred to as Rotating Saving and Credit Associations (ROSCA)

An interesting aspect of Chit Funds in India is that the industry is highly regulated and institutionalized. A Chit Fund can be either “registered” or “unregistered”. Registered Chit funds are organized by Chit Fund firms/companies and regulated by the Chit Fund Act. They are in essence impersonal contracts that depend on market forces. Unregistered Chit Funds which exceed Rs. 100 ($2) in chit value are illegal in India, although it is widely known that the unregistered Chit Funds industry is still very popular.

While no official or government estimates of the industry exist, The All India Chit Fund Association estimates that “the size of industry is Rs 35,000 crore, with the unregistered part estimated to be at least 100 times the registered one”

Value to the consumer

Prof Mary Kay Gugerty, in her paper, “You Can’t Save Alone: Commitment in Rotating Savings and Credit Associations in Kenya” argues that, “saving requires self-discipline, and ROSCAS provide a collective mechanism for individual self-control in the presence of time-inconsistent preferences and in the absence of alternative commitment technologies”

This conclusion, although based in data from Kenya, is also supported by the data collected in India, which suggests that 72.1% of consumers participate in chit funds(Estimate of Chit Fund Industry size) to save.  While 95% of these consumers have bank accounts(Reason for Chit participation : Table 3-7), they still prefer chit funds as a saving mechanism due to higher perceived returns, paperless documentation(Banking Details : Table 3-4), familiarity and doorstep service.

While the actual rate of returns (for savers) and cost of borrowing are highly variable based on a given fund, on average(Reason for participating in Chit Funds : Table 3-11) 6%-42% per annum(Rate of return calculated based on the cost of borrowing, assuming 5% commision, 10 people, Rs 10,000 chit fund and 1 borrower plus 9 savers. Cost of borrowing from Table 5-4 Outside Options – Interest Rates for Loans,)

Housewives and Small business owners are the two most prominent cohorts within the chit fund users(Figure 3-1  Frequency of Occupation based on Gender). Daily chits are popular with small business owners, presumably because it allows them to manage their daily cash flow and allows control over their interest rate when the need for a loan arises(Section 9, Chit funds and Small Business, Para 3).

The chit funds are also perceived to be liquid, Most consumers bid to get the pot when they had an emergency need or when an lucrative business investment came about(Reason for participating in Chit Funds : Table 3-11).

Finally 96% of chit members overall think that the Chit Funds they participate in are safe and about 85% of these chit members are loyal to fund company they are participating in.

Legal framework for Chit Funds

The Government of India passed the Chit Fund Act in 1982, with implementation of the Act left to the Registrar of Chit Funds in each state. This Act, it is relevant to note, contains many restrictions like a minimum Capital requirement (Section 8), prohibition of transacting business other than Chit Business (Section 12), a ceiling on the aggregate chit amount which is 10 times of the net-owned funds (Section 13), Utilization of funds (Section 14), security to be given for full value of chit (Section 20), a self-contained machinery for settlement of disputes etc and a number of penal provision for various defaults(All India Chit Funds Association submission to parliamentary committee), etc.. Notably there are stringent requirements on written formalities like notice to the customer, minutes of the meeting, record keeping and audit by certified chartered accountant(6(1), 15, 35, 40-Chit Agreement, 22(2)- Intimation to Registrar of deposits, 26(1), 34(1) Withdrawal of foreman 28(1) Removal of defaulting subscribers 33(1) Demand note 38(1) Minutes of the meeting).

The regulatory hurdles that the chit companies face due to the stringent rules proposed by the Government progressively, have been a setback to the growth of the industry. The effect of the increased costs of operations for the registered chit companies has been to push these companies ’underground’. Many companies have, in the recent past, either folded up or shifted their operations entirely to the informal arena becoming an ’unregistered’ chit fund(Chit Funds Boon to Small Enterprise).

Economics of running a Chit Fund

Apart from the capital and compliance requirements highlighted above, the key risk of running a chit fund is default. The default rates in the chit industry hover around a meager 1-2%. This is because the chit members are, in most cases, personally known to the chit managers(Section 5, Defaults How are they handled ? – Chit Funds Boon to Small Enterprises). Also,  Defaulters are sanctioned socially as well as being prevented from any further participation(Page 794, Paragraph 2, Economics of Rotating Saving and Credit Associations).

The key source of revenue for a Chit fund manager is commission which is capped at 5%. Alternatively the chit fund managers take the first installment in full. The chit manager can also generate revenue from float interest charges i.e. by disbursing the loan a month after the money is collected, he can earn the interest on the full amount(Section 7 : Sources of Income to the Chit Manager) 

Role of the India Stack

With the size and scope of the chit fund industry, as outlined above, it is clear that there is a large addressable market for innovators. What makes this opportunity more lucrative is the presence of India Stack. India Stack is set of technologies (primarily Aadhaar authentication, e-KYC, e-Sign, Digital locker and UPI) that together dramatically reduce the cost of transactions. For example, an analysis on the Mutual funds business indicated that by use of India stack, the  average transaction cost would drop from Rs 50 to Rs 2, making it viable for Mutual funds to go after the small ticket business.

Opportunities for Start Ups

Given the background above, following is the most promising opportunity for startups:

Organize the unregistered chit fund companies

  1. Hypothesis: With the recent crackdown on black money and tax evasion, it will become more difficult to run unregistered chit funds circumventing the law. This will give the unregistered chit funds incentive to become registered and follow the law
  2. Product: An easy platform that allows management of chit funds through mobile phone app/apps and make it compliant with the law
  3. Key Customers :  Unregistered chit funds
  4. Key Stakeholders : State Government, Unregistered Chit Funds, Users of chit funds
  5. Key activities:
    1. Build technology based on India Stack to meet KYC requirements, sign chit agreements using e-sign, transfer money between people using UPI and keep an account.
    2. Strong sales network to bring the chit funds onboard
    3. Product and legal expertise to liaison with the state governments and registered chit funds to build products that meets all requirements
  6. Need for funding:
    1. Initial product could be built with a relatively small investment
    2. Scaling with scale will likely need venture investments (but no access to large capital should be needed)
  7. Revenue generating activity:
    1. Pay per instance or per user from the funds
    2. Lead generation for Chartered Accountants
    3. Aggregate data reports could be sold
    4. Could also build a government facing interface for monitoring
  8. Competitive Advantage:
    1. No real competition at this point
    2. Network effects could become significant advantage
    3. Implicit or explicit endorsement from Government agencies
  9. Key Risks:
    1. Product adoption risk: The success of the idea is hinged on pressure from government creating the need, which drives adoption. In the absence which it will be significantly harder to move people from the familiar. The risk is somewhat contained because of a supreme court order directing government to act on this.
    2. Regulation risk: A parliamentary committee has recommended that the government revise the regulation. This means that government could do away with a number of provisions, making compliance much easier of chit funds thus eliminating the need for such a company. Again this is low likelihood event given the scrutiny on this sector
    3. Reputation risk: The company will have to be careful not to associate with chit funds with malicious intents. Being associated could result in penalties and damage to reputation.

Guest Post by Kunal Kashyap, IIT KGP graduate, Spent 8 years at Capital One, a US based Fortune 100 Fintech company. Volunteer for iSPIRT.  

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Product Manager as the Wicket Keeper

Wishing you all a very happy 2017, may you get the guts and courage to make the change this year.

Mahendra Singh Dhoni, one of the most successful cricketers is certainly an inspiration for all of us – cricket fans and Indians. While he is a famous and winning captain, probably being a wicket keeper has helped him to shape up his instincts, strategy and execution.

Being a product manager for few years now, I often relate to being a wicket keeper, who really wears multiple hats to help his team and win in the market. Often there is lack of clarity on the role of a Product Manager and why are they needed. In this post I would like to focus on drawing some parallels between Wicket keeper and Product Manager , especially differentiating the greats from good ones.

Pitch reader (Market)

Understanding the pitch is a key aspect to winning a cricket match – so is the understanding of the market to win with a product. Wicket keepers are great pitch readers, as they stay close to it always. So is the product manager, as understanding the market is a very significant success factor for products. If product managers can read the pitch (market) well, they can certainly guide the team very well to shape the right product that fits the market.

Supporting the bowler (Development)

One of the primary roles of product managers is to work very closely with development to shape and release the product. They are involved every ball, they need to be attentive to every detail, they need a great presence of mind, they need to keep motivating and appreciating every milestone. They also support the bowlers on field placements – read as key reviews of every aspect of the design of the product. They can give instant feedback and suggest changes, on the spot to ensure success. They also catch to take wickets – similar to some key contributions by product managers on prototyping and closing loop on the product.

Alert with fielders (Quality Assurance)

Wicket keepers stay alert with fielders and set an example in the field, as well as guide the field on what’s coming from the bowlers. Product managers similarly are one of the initial quality assurance /testers of the product, and guide the QA on how to ensure the quality of the product.

Close to opponent (Competitive insights)

Wicket keepers stay very close to the opponent batsman. They know whats their strength and weakness by closely following and watching them. This can certainly help share their insights to the bowlers. Similarly Product Managers have to stay very close to whats being done by competition, and how the products they build can surpass the competitor products, by understanding their strengths and weakness.

Handy batsman (Sales)

Finally wicket keepers can also support with the bat. While they are not the strike batsman, they may be useful handy batsman as they know the pitch and the opponents, and in some situations could single handed win with their extra batting abilities (like a Dhoni or Gilchrist). Product Manager similarly can support Sales to win in the market. Product managers know all the details of the product, the market and the competition – so they can certainly help win in sales. While they are not the strike sales man, they can be an effective supporting person for the striker. Some Product Managers have a very high success rate of closing business when they are involved.

There could be more parallels…but hope the above helped you understand the critical role of product manager, as critical as a wicket keeper in a cricket match, and some of the key ingredients and potential contribution they can make to your product.

When we all started playing (read startup), we may not need a full time wicket keeper as someone wears that hat in rotation, but to make it big (beyond early stage startup) you probably need one.

Great Product Managers move on to become Great Product Leaders and are winners….Adam Gilchrist or our MS Dhoni !

PS : Never thought MS Dhoni will resign captaincy when i wrote this blog post (he resigned on same day when this post was published). Anyway hoping he will continue to be a wicket keeper for a some more period, and great team player 🙂

Update on 15 Aug 2020 : M S Dhoni retires from international cricket, and the above post is a reflection of how his skills, or skills of a wicket keeper is so important, like how a product manager would contribute to a product !

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BHIM (Android/*99#) & AadhaarPay

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This afternoon the Prime Minister unveiled BHIM – an Android app from NPCI with an equivalent USSD-based *99# service.

Additionally, recently one of the banks launched AadhaarPay – a capability that allows merchants to collect payments from consumers with their Aadhaar# and fingerprint.

There has been a bit of confusion about the role of Aadhaar in BHIM – so this blog clarifies.

BHIM/SmartPhone – the Android and soon iOS app – is a UPI app – no different from PhonePe or any other bank applications. It has been developed by NPCI and is a common application across all banks. As with ALL UPI apps, BHIM has NO connection to Aadhaar – the customer is authenticated by his issuing bank using his Mobile# and MPIN and nothing else. Of course this app conforms to all the security-standards of any UPI application and has gone through the rigorous certification process.

*99# is merely a USSD front-end to the same capabilities. It does exactly what BHIM does but can be accessed on all phones – SmartPhones and Feature-Phones.

Aadhaar itself has NO direct role to play in BHIM – whether on Android or USSD/*99#.

So what is AadhaarPay?

AadhaarPay – leverages the Aadhaar-linked bank accounts to allow payments to a retailer. The payer need not provide anything more than an Aadhaar number and their biometric to the payee. The retailer receiving a payment needs to have a SmartPhone with an Aadhaar-approved secure Biometric Sensor and a certified AadhaarPay application. In this case the security-standards for customer data and biometric must comply both with UPI’s transaction level security and Aadhaar’s biometric security. In the case of AadhaarPay – ONLY Authentication is performed by Aadhaar/UIDAI – the transaction details are never sent to Aadhaar. Think of it as Authentication is done by Aadhaar and Authorization by NPCI/Banks.

One instance of AadhaarPay was released last week by IDFCBank and over time one may see a common AadhaarPay app that at the front-end uses Aadhaar for authentication and the BHIM/UPI back-end for authorization for users who don’t have a mobile phone.

National Pride Moment

The UPI platform, BHIM, *99# and AadhaarPay are great state-of-the-art platforms and applications that are a boon to all Indians. 2016 has been a great year in Payments progress worldwide – and India is leading the way!

With BHIM, *99# and AadhaarPay, the entire 1Billion plus population is now covered with a state-of-the-art real-time payments system. Those who have Smartphones will get the rich-app experience, those who have feature phones will use the USSD interface and the rest will merely need Aadhaar# and their fingerprint/IRIS biometric for to make payments.

3-Cheers to NPCI and the government for blazing such a fabulous trail! The new Twitter handle @NPCI_BHIM is a great way to stay informed about future developments regarding BHIM!

Guest Post by Sanjay Swamy, Entrepreneur & Early-Stage VC! IndiaStack Evangelist

I wish all readers a happy end of 2016 and an awesome year in 2017 – Payments geeks will indeed have a lot of fun working on UPI and the new world of interoperable, secure and universal payments!

 

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iSPIRT is ending the year on a high note

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At the beginning of the year when we wrote down our thoughts in the 2016 Annual Letter about aspects such as break away from copy paste entrepreneurship, innovation bridge with Silicon Valley, progress on open market policies, etc. we thought we will score a few wins in the year. The pace of progress has surprised us. In many areas we have exceeded our best expectations.  

The last few months have been particularly hectic for iSPIRT. Some of the wonderful work of iSPIRTers is captured in the four events that took place in the last five weeks:

#PNgrowth, Nov 25th – 28th: This intense 3-day bootcamp is grooming the future category leaders of our Software Product Industry. This was our second PNgrowth bootcamp this year. Read about it in Avinash’s evocative blogpost: Behind the scenes of $2 billion Indian startup movie #PNgrowth.

Startup Bridge India, Dec 2nd: This was our first roadshow in Silicon Valley and was done with TiE SV and Stanford University. We sought out strategic partners for 28 startups that traveled from India. This was organized by our M&A Connect Program, which is now led by Rajan. Read about the matchmaking event in a descriptive blogpost by Roxna: Startup Bridge India: Breaking Down Borders, Barriers and BS.

InnoFest #IndiaInnovates, Dec 8th: We are slowly and steadily building a community of hardware product innovators to cater to the needs of 100m families in ‘India 2’ (beyond metro). Financial inclusion will soon allow them to improve their lives using Indian products. Prathibha, the anchor volunteer behind InnoFest, captures the mood in her blogpost: InnoFest 2016 – Innovation celebrated in Bangalore, and how…

FinTech Leapfrog Council, Dec 16th: India is set to leapfrog the rest of the world in financial inclusion driven by India Stack. The FTLC program combines global best practices with a home-grown, world-class architecture for financial inclusion, and helps incumbent Indian banks create a “leapfrog roadmap” for their organizations. Venky, the anchor volunteer driving this initiative, describes the thinking behind FTLC in his blogpost: A Leapfrog moment for Indian Banking.

We are ending the year on a high note!

Next year will be a busy one for us given market inflections and the heightened expectations from us. This presents iSPIRT and each of us with a unique opportunity to contribute and make a difference.

With loads of best wishes for 2017 from all of us volunteers at iSPIRT.

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A Leapfrog moment for Indian Banking

At iSPIRT, our belief is that banking will change more in the next five years than it has in the last 50 years. For a variety of reasons, the changes happening in India will follow a path that is very different from other countries. Indian Banks therefore have two choices: Create a new playbook to deal with these changes, or stick to the old rulebook and risk being disrupted.

In mid-2015, Nandan Nilekani gave a talk titled, The Whatsapp Moment in Banking that went viral within banking circles. The analogy was derived from the manner in which the sharp growth of Whatsapp had hit the SMS revenues of the global telecom industry. SMS used to account for 10-15 percent of the global telco industry revenues but Whatsapp, a company that had a mere 40 people in 2009 easily eclipsed them with a traffic of 30 billion messages per day. As against this, all the incumbent telcos of the world put together accounted for just 20 million messages per day! Similarly, a growing confluence of technologies would allow new age banks to handle millions of customers at a very low cost, without costly branches and expensive technologies; and with a minimum staff strength.

Responding to this challenge, Mrs. Arundhati Bhattacharya, the Chairman of the State Bank of India, India’s largest bank, brought a team of more than 30 senior leaders from SBI to Bangalore for a half-day session on how banking is being transformed in July 2015. This session became the forerunner for a forum called the FinTech Leapfrog Council (FTLC) that iSPIRT set up to help incumbent banks navigate the disruptive changes facing them.

001For incumbent banks to transform themselves is a truly difficult challenge, but given that these banks cumulatively account for more than 30 percent of the Indian banking sector, their transformation is of national importance. In the first phase of FTLC, four banks — SBI, Bank of Baroda, Axis Bank and IDFC Bank — were invited to join FTLC, and all four of them accepted. FTLC then helped the banks through quarterly workshops that consisted of deep-dives focused on disruptions in areas like alternative lending, payments and analytics; and emerging technologies like the Unified Payment Interface, and the IndiaStack, which enables cashless, presenceless and paperless transactions with a consent layer on top. Some of the industry leaders who spoke at FTLC workshops, which attracts the CEOs and top management of the four banks are:

  • Shamir Karkal, Head of Open APIs at BBVA Bank, Spain, and co-founder of Simple Bank
  • S Ramakrishnan, former Chief Data Officer of Citibank
  • Prof. Saras Sarasvathy of the Darden School of Business
  • Nandan Nilekani
  • Sharad Sharma, co-founder of iSPIRT
  • Sanjay Swamy, Managing Partner of Prime Ventures.

While everyone agrees that what a bank looks like 5-10 years from now would be radically different, no one can predict exactly what the bank of the future will look like. In this situation, banks face one of the most disconcerting forms of change that we call non-linear change. In the FTLC taxonomy, there are three kinds of change:

  1. Incremental change focussed on process improvement — for example, approving a loan in five days as opposed to seven days
  2. Disruptive change which is very painful, but where the end state is well known. Several MNC IT services companies faced this, when they recognized that they had to embrace the Global Delivery Model perfected by Indian services companies. In the last few years, many of these MNCs turned around their business models and reached a point where most of their employees are in India. The change was painful, but they had a sense of where they were and where they need to be.
  3. Non-Linear Change, where the end state is difficult to predict. In the telecom industry, who would have predicted that Whatsapp would carry 30 billion messages a day? In the transport industry, who would have predicted that Uber, a company founded in March 2009, would be valued at $62.5 billion in June 2015?

To navigate the Non Linear Change, iSPIRT helped the FTLC banks embrace Non Predictive Control (NPC), a method researched by Prof. Saras Sarasvathy of the Darden School of Business. While strategic planning helps organizations in situations where the future is predictable, NPC helps banks in situations where the future is unpredictable. For instance, its is clear that a large expansion will take place in non­-collateralized debt to the under­banked, but it is impossible to know what this alternative lending system will exactly look like. Hence, it’s imperative that banks bet on several competing scenarios, monitor progress on all of them, and then retire or double down on each bet. iSPIRT curated a set of startups in Alternative Lending and Payments, and set up several pilots with the FTLC banks, to help them master the NPC methodology.

For Indian banks, another development, unique to our country, is the emergence of the IndiaStack, a powerful set of Open APIs to enable cashless, presence less and paperless transactions with a consent layer that empowers users with control over their data. iSPIRT has been closely involved in the development of the IndiaStack, which rides on top of the JAM trinity consisting of JanDhan bank accounts, Aadhaar biometric identification and Mobilephones.

The Government promoting financial inclusion through Jhan Dhan Yojana, has led to over 263 million new bank accounts being opened. With RBI giving licences to over 20 new banks, including small banks and payment banks, the competitive intensity of the sector is set to increase. Over 1 billion Indian residents now have Aadhaar, an online biometric identity, and smartphones are expected to reach a penetration of 700 million by 2020. One can visualise a future where every adult Indian has an Aadhaar number, a smartphone and a bank account. Already over 367 million Indian residents have an Aadhaar linked bank account and more than 1 billion DBT (Direct Benefit Transfer) transactions have happened, whose value is in the billions of dollars. Those banks that leverage the JAM trinity and the India Stack will be able to reach out to a vast new set of customers, at a dramatically lower cost. For example, it is estimated that the cost of complying with the mandatory Know Your Customer (KYC) norms can be brought down from Rs 1,000 to Rs 5, by using the IndiaStack. This alone can enable the process of financial inclusion for millions of Indians.

Industry experts, like Bill Gates, and many others who have been following these developments, feel that India is set to leapfrog the rest of the world in financial inclusion. The FTLC program combines global best practices with a home-grown, world-class architecture for financial inclusion, and helps incumbent Indian banks create a “leapfrog roadmap” for their organizations.

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InnoFest 2016 – Innovation celebrated in Bangalore, and how…

Robots, Drones, Electric Bikes, 3D printers, Modular Homes – It’s all Happening in India – #IndiaInnovates

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The Indian Software Product Industry Roundtable (iSPIRT), a think tank dedicated to the cause of the Indian Product Industry, held its flagship event InnoFest 2016 in Bengaluru. This unique event was inaugurated by Mr. Mohandas Pai, Chairman of the Board, Manipal Global Education. The one day long festival focused on hardware innovation encompassed inspirational talks by industry leaders, sessions by key innovators, a panel discussion, a product showcase, workshops, a DIY pavilion and makerspaces. Mr. Mohandas Pai and Vijay Shekhar Sharma, Co Founder Paytm, delivered the  opening address.

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InnoFest 2016 had over 1200 registered participants and showcased 150 products and innovations. The event featured 10 Workshops, 12 DIY Pavilion participants and 2 Community projects, wherein the audience could actively participate. Over 35 Speakers addressed the huge gathering of budding innovators, manufacturers, techies, entrepreneurs, students, professors, researchers and representatives from the financial sector. A significant number of participants were women entrepreneurs and innovators.

In his keynote and inaugural address Mr. Mohandas Pai, said, “More often than you think, innovations are stemmed from an idea that provides a solution to recurring and nagging problems that you may face personally. To translate that idea into a product and a business, requires an eco-system to support it and reach-out to the markets. InnoFest provides that platform and unlocks a plethora of opportunities. It is imperative that successful innovators need to foster other innovators and harvest benefits collectively. I’m elated to say that InnoFest is turning out to be a hub for innovation led entrepreneurs.”

InnoFest 2016 showcased exciting innovations such as a Sumo wrestling Robot, electric bikes, modular portable micro housing units, a 3D selfie maker, digital microscopy, 3D printers, pop up makerspace, farming tools, healthcare devices, education products, green energy equipment, environment related products were just the tip of the iceberg.

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InnoFest also had a host of mentors who were available throughout the day to have a one-on-one discussion with participants. A workshop focused on providing a clear understanding of Entrepreneurship for early entrepreneurs and novice entrepreneurs was a runaway hit.

A key element that innovators grapple with is Funding, InnoFest featured a session on funding resources for early stage Hardware Entrepreneurs, Crowd Funding, Challenges in obtaining Grants and Equity Funding.

With the Make in India movement gaining momentum a session on Building Hardware Businesses in India/from India, enlighten the participants.

Mr. Sharad Sharma, Co-Founder of iSPIRT and Convenor of InnoFest, said, “India is on the cusp of a business revolution. We are going to see a spurt in the manufacturing sector addressing basic human needs air, water and food. Today’s innovators are going to be the leaders tomorrow. Events such as InnoFest will be pivotal in providing a jump-start to budding entrepreneurs.”

The Patrons of this event were Mr. Amitabh Kant CEO, NITI Aayog; Mr. Jayant Sinha, Minister of State for Civil Aviation, Government of India; Mr. Nandan Nilekani, Former Chairman of Infosys and Former Chairman of UIDAI; Mrs. Kiran Mazumdar Shaw, Chairman and Managing Director of Biocon and Mr. Mohandas Pai, Chairman of the Board, Manipal Global Education.

InnoFest was concieved as a day-long festival of ideas and inspiration that will exponentially multiply innovation across the country and make India into a Product Nation. Our research shows that there is a need for a strong support ecosystem for hardware innovators similar to that available to software innovators. InnoFest seeks to bring together the multitude of partners needed to build such platform that encourages and supports grassroots innovators from ideation to realization to growth. iSPIRT strongly believes that a robust product ecosystem is the key to rapid growth across the country.

 

#IndiaInnovates

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Industry 4.0: The New Normal

In case you are a manufacturing company beginning to explore how investment into Artificial Intelligence and Internet of Things could help your top and bottom lines, you may already have fallen behind. The fourth industrial revolution or the ‘Industry 4.0’ is already upon us and the opportunities to completely transform the way we carry out production are limitless. Industry 4.0 may be broadly defined as a collective term for a number of contemporary automation, data exchange and manufacturing technologies. It is characterised by a diminishing boundary between the cyber and physical systems to enhance productivity and reduce costs. ‘Smart’ and ‘Connected’ are two of the most important keywords in the new industry universe. Smart takes us into the domain of Artificial Intelligence (AI) while ‘Connected’ is more a purview of ‘Internet of Things’ (IoT).

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‘Smart’ – A detour into Artificial Intelligence

AI finds its roots way back in 1956 when the name ‘Artificial Intelligence’ was adopted or even further back with Alan Turing in 1950 or in 1943 when McCulloch & Pitts introduced the Boolean circuit model of brain. It’s still however, a little difficult to settle on one universal definition of AI. For our purpose we may define AI as the development of computer systems able to perform tasks normally requiring human intelligence. These may include (but are not limited to) visual perception, speech recognition, decision-making, and translation between languages. More passionate people define AI as the ability to ‘solve new problems’.

The lack of one single definition has not detracted investors from recognizing the potential of AI and they have been pouring in money like never before. As per Zinnov Consulting, in the last 5 years alone, investments in AI have grown ten-fold from USD 94 million in 2011 to USD 1billion in 2016. As per CB Insights, the equity investments in AI were North of USD 2 billion in both 2014 and 2015. We may attribute different ways of defining AI to different investment figures, however we can agree that investments have sky rocketed. While, Venture capital firms have obviously been at the forefront in backing early stage companies, the high corporate interest in acquiring AI start-ups has also led to a buzz in the M&A markets. Some of the biggest acquirers in AI include Google, Apple, Salesforce, Amazon, Microsoft, Intel and IBM.

India is holding its own in terms of AI related action. As per Zinnov, India has emerged as the 3rd largest AI ecosystem in the world with 170 start-ups. Niki.ai, SnapShopr, YANA, HealthNextGen, Aindra Systems, Hire Alchemy are some of the notable firms trying to disrupt the value chain across sectors. Global technology companies have acquired more than half-a-dozen India based AI start-ups in the last 18 months. It’s not all one way traffic. Indian IT services firms like Infosys (UNSILO, Cloudyn, TidalScale) and Wipro (Vicarious, Vectra Ventures) have been looking for targets abroad to augment their AI capabilities.

Table 1: AI use cases across sectors

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‘Connected’ – the Industrial IoT

The Industrial Internet of Things refers to the network of equipment which includes a very large volume of sensors, devices and “things” that produce information and add value to the manufacturing processes. This information or data acts a feed to the AI systems. As per Cisco, 50 billion devices will be connected by 2020 and 500 billion by 2030. McKinsey projects that IoT will generate 11% of global GDP by 2025. This is driven by optimising industry performance and cost efficiencies.

 

IIoT on the Factory Floor

The global IIoT spending is estimated at USD 250 billion and is expected to reach USD 575 billion by 2020. The key components of the IIoT ecosystem include sensors/modules, connectivity, customisation, and platform/IoT cloud/applications.

As per NASSCOM, The Indian IoT market is expected to reach USD 15 billion with 2.7 billion units by 2020 from the current USD 5.6 billion and 200 million connected units. This is expected to be largely driven by applications in manufacturing, automotive and transportation and logistics.

In India, the IIoT segment has caught the attention of the largest manufacturers. In November 2016, Reliance and GE announced a partnership to work together to build applications for GE’s Predix platform. The partnership will provide industrial IoT solutions to customers in industries such as oil and gas, fertilizers, power, healthcare and telecom. Mahindra & Mahindra’s uses bots to build car body frames at its Nashik plant. Plants operated by Godrej and Welspun use the Intelligent Plant Framework provided by Covacis Technologies to run their factory floors.

Industry 4.0 is an exciting phase and the possibilities seem limitless. The Indian government is trying to play its part through the Digital India mission. It is positively driving various government projects such as smart cities, smart transportation, smart grids, etc. which are also expected to further propel the use of IoT technology. It is imperative for the promoters and companies in the manufacturing segment to find their place in the new digital world order through organic or inorganic investment.

arvind-yadav

 

 

 

This is a guest post by Arvind Yadav,

Principal at Aurum Equity Partners LLP.

 

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What to expect from National Policy on Software Products [Draft]?

Ministry of electronics and information technology (MeitY) has released the draft of National Policy of Software Product (NPSP) for public consultation.

Click here to see the announcement and how to respond to the consultation process.

Click here to see the draft pdf document.

This blog aims to explain where the draft NPSP policy statement stands at present and what to expect further.. The blog also answers many questions arising out in the minds of stakeholders in Software product industry as well as IT industry in general.

This may help Software product industry stake holders in responding to MeitY on this consultation process, which ends on 9th December 2016.

How does NPSP help India?

The first Software policy came up in 1986. It resulted into Software Technology Park (STP) scheme in 1991. Even after 25 years the old Software policy (1.0) of 1986 still prevails, with focus on IT services.

But, past few years have seen serious decline in growth, owing to rapid transformation in technology and Software industry, globally. India’s IT sector is strong enough to face changing technology challenges. India’s national competitive advantage has taken a shift towards innovative stage and ‘product’. Please see another blog on this subject here.

To address globally relevant strategic paradigm shifts, a Software 2.0 policy is needed with ‘product’ as focal to it.

This consultation process will lead this Software 2.0 policy. It will help in India in capitalizing on the existing matured IT industry and build a phase 2 of Industry in form of product based Industry. There are 3 advantages that NPSP announcement brings us.

Firstly, with NPSP announcement, India will give recognition to Software product industry.

Secondly, schemes and programs emergence from NPSP that will catalyze Software product industry eco-system.

Thirdly, Software product industry will have legitimate governance structure in Government of India that help solve problems and provide level playing field.

The draft policy does not have any actionable but only intent statements?

Yes, presently the draft is only a macro policy statement with a vision, mission to be achieved and ten strategic areas to be addressed. Let us understand different aspects of it.

There were two challenges to framing if this draft policy. One most people in Government system link the Industry policies framing directly to a package of fiscal incentives that help in direct market intervention. On the other hand, IT industry having matured, there is less appetite at ministry of finance to easily carve out a fiscal incentive program.

Two, iSPIRT believed that innovation and product based industry needs multi-layered action plan that can help promote the eco-system central to product industry. Adding any fiscal package right in beginning, to the policy statement would have put the efforts in jeopardy.

Hence, most areas that need to be acted upon are summed up in 10 Strategies in the draft. This macro policy announcement helps in getting policy rolled out in two stages.

First, set strategic intents and recognize a product industry.

Second, Action plans (schemes, programs, incentives and institutional setups) can follow on need basis and in phased manner after the policy is finally launched. Policy can be leveraged through multiple threads focused on defined actionable. It could be a) immediate action item list; b) ecosystem building programs; c) segment specific packages and lastly d) incentive schemes.  For example, SaaS based product segment needs an early support in form of a booster package that solves their multiple problems.

This is a right flexible approach adopted by MeitY. This is how it happened in Software 1.0 policy as well.

Let us achieve stage one and then proceed to stage two.

Are there stages envisaged further to announcement?

At iSPIRT, we believe, after the promulgation of NPSP the very first action that is required to be taken by MeitY is a new institutional setup (instead of relying on old or existing vehicles).

Hence, a ‘National Software Product Mission’ (NSPM) should be setup urgently, as nucleus of activity to cater to emerging Software product industry. NSPM can operate under an inter-ministry board, thus drawing legitimacy to understand and solve problems of this emerging industry, across Government departments, at a single point.

NSPM should become a forum for intellectuals and industry practitioners for issues of technology, boosting R&D, international competitive dynamics, steps and actions needed to handle challenges that industry face in a continually evolving dynamic world etc.

Let us welcome the NPSP with open mind and right expectation

Some point in NPSP may not be rightly synching with every segment of Industry. However, one must also note that, the Government’s stake in an industry policy is also multi fold which also including the generation of employment and income.

In view of above, it is in favour of Software product industry to welcome this step 1 of formulating a viable National Policy on Software products. An early approval of NPSP is in the interest of Software product industry of India as well as country to look at a bright future.

A positive welcoming feedback will help MeitY in early approval.

We sincerely hope NPSP will soon be approved and help in building a “Software product nation”.

If you still have any questions you can write to [email protected] or [email protected]