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8th Open House Session- Ballon Volunteers

Thank you so much for your patience…

Many of you asked when the volunteer programme would be available to apply, and here we are again. We do have some changes, though, so please pay attention.

This application process will be available only for the next couple of months and close by December 20th, 2024. It’s on a rolling basis, so apply immediately.

Many of you are already familiar with iSPIRT and its activities; this is your chance to join this volunteer movement. So take some time to review the programmes listed and watch the videos, not just the current ones but also the previous ones, to better understand the journey. Also, please read the Playground Coda and the Volunteer Handbook.

Are there tools we can help build to solve privacy issues, or what kind of packets will help get the internet to remote parts of India? Do you have a better solution to some pressing matters discussed in the videos? Then, you need to apply. Some legacy options and some new options are also available.

Is there some project that strikes your fancy, some part that calls out to you, and you know you can do it? To apply, click this link and follow the process.

I am reminding you again that the deadline is December 20th, 2024.

A journey with iSPIRT is also about the journey with yourself.

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Budget 2024 – Empowering Startups and MSMEs, and Doubling Down on DPIs and R&D

This 2024 Budget coming post-election has aroused the most curiosity since the budget of 2014. It is for two reasons that this 2024 Budget is significant as we work towards a Product Nation: Reason 1 is for this budget’s Innovation and related public spending on private innovation and Reason 2 is for the next-generation reforms to create a simpler regulatory environment. It is heartening to note that both items are priority areas.

The continuity of the interim budget announcement of 1 lakh crore for private R&D funding is encouraging enough for the startup ecosystem. Under the Vishvamitra initiative, iSPIRT has been pursuing funding at scale for private sector-led R&D and its commercialization. The announcements of funding research in highly sensitive strategic areas such as Small Modular Nuclear Reactors and setting up a 1000 crore venture capital fund for the Space economy have been on our list of initiatives to advocate for and it is heartening to see the Government address R&D investments in geopolitically sensitive areas. 

The Finance Minister announced, “We will set up a mechanism for spurring private sector-driven research and innovation at commercial scale with a financing pool of 1 lakh crore.” What and how this mechanism will be set up will be critical for enabling R&D in the country to achieve Viksit Bharat 2047.

Among iSPIRT’s top  initiatives is the Stay-in-India checklist, and the request to remove the “Angel Tax” for all classes of investors. The removal of angel tax is the biggest highlight of this budget for the startup ecosystem. The announcement comes after decades of struggle and persuasion. Finally the government has recognised the role of startups in generating employment and has acted in a positive direction. 

There is a huge amount of work pending to reform Ease-of-Doing Business (EoDB) if India is to achieve the set objective of Viksit Bharat 2047. The Finance Minister stating an  intent to “formulate an Economic Policy Framework” to set the “scope of the next generation of reforms for facilitating employment opportunities and sustaining high growth” perhaps speaks about the government’s thinking on it.  

The government’s intention to involve states in ease of doing business (EoDB) efforts is also a very welcome step. We hope the next moves are swift and the government seriously attempts to at least be in the top 10 EoDB destinations globally. This is much needed for MSMEs, Startups, and even to attract FDI in GCCs. The economic survey tabled yesterday also aligns with this thought process. 

“We have successfully used technology for improving productivity and bridging inequality in our economy during the past 10 years” said the budget speech. Public investment in Digital Public Infrastructure (DPI) coupled with innovations by the private sector has been a well-accepted norm now. The Government is serious about using the DPI approach in multiple areas, from agriculture to education, etc. The increased penetration of DPI will eventually help digitalization and penetration of software products in the economy. 

The budget recognising MSME credit as one big area requiring attention has also called for several actions in this direction. One important step is involving PSU Banks to build their in-house capability to assess MSMEs for credit using an MSME’s digital footprint, instead of relying on external assessment. This will encourage banks to develop cash flow based lending on lines of another initiative of iSPIRT – the Open Credit Enablement Network (OCEN) that focuses on information based collateral lending rather than asset based collateral lending which in turn could help in developing a new credit assessment model that evaluates the digital footprints of MSMEs in the economy. 

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Interim Budget 2024 – DPI’s the new factor of productivity

This being an interim budget, much was not expected as far as new announcements and taxation changes. However, for iSPIRT and the Product ecosystem of the country, it is heartening to know that some of our initiatives and thoughts as a ‘think-tank’ have become central to thinking of Government at the leadership level. The following are important to note

The Finance Minister mentioned that “DPI (digital public infrastructure), a new factor of production in the 21st century, is instrumental in the formalization of the economy”. She also mentioned the G-20 successes. ISPIRT pioneered the concept of DPI and played a vital role in rolling out many DPIs and covering the DPI advocacy as a knowledge partner to the Digital Economy Working Group. 

The second announcement that can hugely impact product nation-building is the funding of Research. FM announced that, “A corpus of rupees one lakh crore will be established with a fifty-year interest-free loan. The corpus will provide long-term financing or refinancing with long tenors and low or nil interest rates. This will encourage the private sector to scale up research and innovation significantly in sunrise domains.” Also, the thought of generating employment and empowering youth was central to this announcement. We hope that post-election a robust mechanism can be developed to implement this and capitalize on nation-building. This announcement is also important from iSPIRT’s thought process where a continuous push under its “Vishwamitra” initiative is being out on funding R&D in multiple ways at scale. 

Also notable is,  a new scheme for deep-tech technologies for defence aiming at expediting ‘Aatma-nirbharta’ is on the anvil. 

Although nothing new has been announced, Start-ups are central to the Government’s thinking for economic development. 

Overall it is a futuristic thinking budget speech with an emphasis on deep-tech, research funding, Capital inflows and startups along with capex and infrastructure. 

Though there was a mention of ‘Reform, Perform, and Transform’ as a guiding principle, the budget did not touch upon any specific reform or intent on Ease of Doing business. We wish this becomes an important agenda item along with funding research for our businesses to succeed in global competition. 

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iSPIRT’s response to Union Budget 2023

Budget 2023 – Digital Public Infrastructure (DPI) the ‘Mantra’ for New India

iSPIRT Foundation, a technology think-and-do tank, believes that India’s hard problems can be solved only by leveraging public technology for private innovation. iSPIRT as a think tank pioneered the Digital Public infrastructure (DPIs)

India is at the cusp of what could be the most exciting quarter century of its post-independence existence, referred to as ‘Amrit Kaal’ by the Economic Survey yesterday and today in the Budget speech. The Economic Survey also mentioned that GDP could be boosted by 1% by Digital Public Infrastructure (DPIs), where India is stealing a March on the world for sure. 

The second testimony to the important contribution of DPIs to the economy comes in the budget speech today when the finance minister stated, “India’s rising global profile is because of several accomplishments: unique world class digital public infrastructure, e.g., Aadhaar, Co-Win and UPI” in the forefront. 

Development of DPIs, Stay-in-India Checklist (for Ease of Doing business of Startups), and a ‘jugalbandi’ between public technology and private innovation, through techno-legal regulations, are central to iSPIRT’s work in an attempt to build Product Nation. 

The union budget 2023, brings in cheer to see attempts on the following:

  • Digital Public Infrastructure: The resolve to deepen the DPI and the belief in their role in economic growth. India Stack to build the DPIs has become central to the thought process. Taking the queue ahead the budget 2023 announced the development of DPI for Agriculture, which will be an open source, OpenAPI digital public good, to build inclusive farmer-centric solutions, credit & insurance, farm inputs market intelligence. An Agriculture Accelerator Fund has been announced to promote Agritech start-ups.
  1. Vigyan Infrastructure: efforts to boost R&D, though limited to some sectors right now. Notable among these are – It encourages private sector R&D teams for encouraging collaborative research and innovation in select ICMR labs in the PPP model
  2. One hundred labs for developing applications using 5G services will be set up in engineering institutions. 
  3. Center of Excellence for AI for “Make AI in India and Make AI work for India
  • MSMEs funding & growth is part of the budget thought process, which may lead to the use of another DPI called Open Credit Enablement Networks (OCEN) for enabling MSME funding.
  • The importance of Ease of doing business is reflected in some announcements like using PAN as a Common digital identifier and entity DigiLocker for MSMEs.
  • Wanting to keep the startup revolution going is reflected in the intent to use Startups to build technology in multiple sectors and also use the policy for a new India.

However, beneath all the euphoria, some chronic issues remained to be addressed. The disappointment is on the Stay-in-India checklist (a list of Ease of doing business issues for Startups) to stop startups from slipping from India, which has not been addressed. The checklist is being continuously pursued by iSPIRT and is much needed to provide a competitive edge for India to refrain startups from leaving her jurisdiction.  

Overall it’s heartening to see the vision statement in budget, “Our vision for the Amrit Kaal includes technology-driven and knowledge-based economy”.   

About iSPIRT Foundation – We are a non-profit think-and-do tank that builds public goods for Indian product startups to thrive and grow. iSPIRT aims to do for Indian startups what DARPA or Stanford did in Silicon Valley. iSPIRT builds four types of public goods – technology building blocks (aka India stack), startup-friendly policies, market access programs like M&A Connect and Playbooks that codify scarce tacit knowledge for product entrepreneurs of India.

For more, visit www.ispirt.in.For further queries, reach out to Email:  [email protected] or [email protected].

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WANI 3.0: Unleashing Business Innovation and Open Wireless Network Growth for Universal Connectivity

PM-WANI has allowed sachetised access to WiFi connectivity. However, the true vision of WANI standard, where small business owners can participate as network service providers resulting in fast network growth, has not been realised. We propose the next version of the WANI standard where a more open ecosystem can be enabled to facilitate business interactions such as delegated payments and roaming, which in turn can catalyse increased user base, rapid network growth, and business innovations.

The PM-WANI framework is revised periodically, taking into account the new developments, security updates, etc. Version 1.0 was released in 2020 and this was used for the pilot deployments. The updated 2.0 specification was released in 2021 and is the current version in use. You could read more about these versions here. This whitepaper defines iSPIRT’s vision for the PM-WANI Version 3.0 specification

PM WANI 3.0: Unleashing Business Innovation and Open Wireless Network Growth for Universal Connectivity [v.2] from ProductNation/iSPIRT

The blog post and proposal are authored by Saurabh Chakrabarti, Nilesh Gupta, Vishal Sevani, Sharad Sharma, and Himanshu Tyagi on behalf of iSPIRT Foundation. Nilesh Gupta and Himanshu Tyagi are faculty members at the Indian Institute of Management Nagpur and Indian Institute of Science, respectively, and they also represent their views as researchers on the topic.

The authors would like to thank Centre For Development Of Telematics (CDoT) for their detailed discussions and conversations about the workings of PM-WANI. Would also like to thank Bhuvnesh Sachdeva, Shubhendu Sharma, and Satyam Darmora for their insightful comments about the WANI ecosystem.

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ONDC – Is it the next game changer for Digital India?

If you have not come across ONDC – Open Network for Digital Commerce, its time you know about it and this post is to help better understand what problem it addresses, how it operates, and the value that it brings to consumers, businesses, retailers, existing e-commerce platforms and the state.

Problem statement

There are a number of pain points around current digital commerce:

  • Its dominated by a few players e.g. Amazon, Flipkart, Zomato, MakeMyTrip, etc.
  • Consumers have to go to multiple platforms to search and explore the products/services they would like
  • Consumers are restricted to only a subset of products/services available on the platforms
  • Consumers need to go to multiple places for different products/services
  • Penetration is not widespread across the country and small towns
  • Small businesses are not able to participate and sell in the digital commerce space

Solution

Open Network for Digital Commerce is a network of e-commerce. It is a network-centric model where, so long as platforms/applications are connected to this open network, buyers and sellers can transact irrespective of the platforms/applications they use. It’s like “UPI of e-commerce”

Source: ONDC.org

ONDC works on 3 important use cases to solve the problems, which explained very well by ThinkSchool

Discoverability – allows you to discover products across different platforms using a common catalog

Interoperability – where you can combine multiple platforms to accomplish different services e.g. product with delivery, services with payments etc.

Price comparison – allows you to compare prices across these platforms e.g. ticket prices across different ticketing platforms.

How does it work?

Through an open protocol network, various selling /buying apps such as flipkart, dunzo, airtel, paytm will connect to the network and the consumer will be able to access the product/services through any of the apps.

You can either connect to the buyer network or seller network. One of the important aspects of ONDC is to standardize the product/services catalog so that consumers get a common experience. All the technical specifications are available here

Role of ONDC

ONDC will play three roles as laid out by their CEO

Development – Build and sustain the network with cutting-edge tech and facilitation widespread participation of ecosystem players

Network Management – Establish a code of conduct for the network, with policies and rules for the network

Service Delivery – Foundation services for operations of the network e.g. registry, certification, grievances redressal

Value for stakeholders

Consumers – amazing way to explore and get the best product/services across platforms, sellers

eCommerce Companies – Gets a wide reach with Govt. backing to get to a large user footprint, make them more competitive

Small Businesses – Gets them to sell products and services across the country, without having to be associated with a single platform

Government – Accomplish the mission of connecting India digitally and enhancing the economy significantly

Challenges

This is a massive and ambitious project, balancing of different stakeholders is going to be huge, as well as connecting all of them. Also ensuring the quality of service is going to be a big factor, as the trust factor of the platform plays a big role in deciding where to buy.

But given the Government backing and really smart think tank behind this, these challenges may likely be overcome.

Key Takeaway

ONDC looks to be a huge potential and another game changer for an Atmanirbhar Bharat.

More Resources

ONDC Strategy Paper

ONDC on twitter

ONDC CEO Blog on ONDC 101

Nandan Nilekani ONDC Keynote

ThinkSchool on ONDC

Benefits and Glitches explained in detail

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38% of India’s Unicorns Are Not “Indian”

India currently has 90 unicorns – startup companies that are valued at over $1b – and will likely soon have 100 unicorns, becoming the third such country after the USA and China. Since January 2016 when the “Startup India” program was launched, the startup ecosystem of India including infrastructure for startups, be it incubators, mentorship, funding, corporate initiatives, media coverage, or even patent filing, has improved substantially making life easier for entrepreneurs. 

However, it is still not as smooth a ride for the Indian start-ups as it is for startups in the advanced economies of say, the USA, Singapore, and China. Our “ease of doing business” is yet to be on par with the developed world, especially given the high taxation, onerous compliance requirements, inadequate and cumbersome legal protection of IP, as well as time-consuming and expensive processes to access capital and secure exits. It isn’t a surprise therefore that many companies are shifting their primary legal location to foreign jurisdictions like the USA, and Singapore. 

How do the numbers stand?

As per a study by Venture Intelligence, of the presently known 90 “Indian” unicorns), 56 are based in India, 25 in the USA, 8 in Singapore, and 1 in the Netherlands spanning sectors from e-Commerce to fintech to gaming and more. In other words,  38% of “Indian” unicorns are not quite Indian as they are domiciled outside of India. Moreover, these 34 unicorns have raised approximately $30B ie, this large money could have been but hasn’t been invested into an India domiciled entity. 

Sector Wise break-up of the Unicorns 

Source: Venture Intelligence

Chart: Sector-wise domicile of unicorns as on 31st March 2022.

The reasons for incorporating in the USA are different from incorporating in say,  Singapore. SaaS founders find it easier to reach out to the large market for SaaS “Software as a Service” based offerings in the USA by incorporating there. Companies incorporated in Singapore for high “ease of doing business”, low taxation, quality infrastructure, and quality of life while remaining close to India.  

Out of 12 Indian unicorns in the SaaS category, all except Zoho and Darwinbox are based in the USA. SaaS offerings are expected to be a $1 trillion opportunity and India will lose wealth creation, tax revenues, listing, and related income, by not having these companies domiciled in India. 

Of the three unicorns in a frontier technology area like Artificial Intelligence, namely – Glance, Fractal, and Mindtickle, one is registered in Singapore while the other two are in the USA. Of the 3 unicorns in Gaming, Mobile Premier League and  Dream 11 are based in Singapore and New Jersey respectively while Games 24×7 is registered in India. 

Flipkart, India’s greatest startup success story and the poster boy for Indian e-commerce, which was acquired by Walmart at a valuation of over $20B, was domiciled in Singapore.  That set the trend of e-commerce companies having their HQs in the island country. There are many Singapore shell companies set up by VC funds to become holding companies for Indian subsidiaries. Singapore is today the hottest destination for the registration of Indian e-commerce players.

Even more worrying than this trend of registering the parent company outside India is the migration of startup founders to UAE and Singapore.  Lower taxes, easier access to capital, government support, simple compliance, and better quality of life while being just a short flight away from India make the UAE and Singapore rather attractive to founders. 

Whichever country our startups chose to register or our founders chose to migrate to, the ultimate loser is India with intellectual property ownership and funds being vested in non-Indian jurisdictions. 

Stay in India Mission

In order to retain the economic value added by the start-up ecosystem, it is important that India urgently puts in place policies that ensure that founders and startups ‘Stay-in-India”.  This will require the coming together of various ministries, particularly DPIIT/Min of Commerce, Ministry of Finance, Ministry of Electronics and Information Technology, and regulators like the Reserve Bank of India and Securities and Exchange Board of India to address the Stay-in-India Checklist. 

Stay-in-India is an evolving checklist of issues that need to be solved to contain the exodus of startups from India. These issues fall under four categories: a) Ease of doing business and making it easy to raise funds; b) harmonization of coding of digital economy c) Reducing overall tax anomalies and d) Increased DTA and foreign markets access. 

The issues are comprehensively listed in the Stay-in-India checklist. 

As an example, let’s consider the anomalies in the taxation of dividends. Dividend received from overseas subsidiaries, that has been already taxed, is taxed once again in India as income in the hands of the company. Also, while the rate of tax on such dividends for certain companies is 15% (as against 30%), the same exemption is not provided to limited-liability partnerships and individuals. It amounts to double taxation of income and discourages a model where overseas subsidiaries of Indian startups can pay dividends at lower tax rates to Indian shareholders. Removal of this dividend tax will directly encourage start-ups to remain domiciled in India and receive dividend income from subsidiaries abroad. 

Similarly, there are regulatory frictions e.g. TDS on the sale of software products which reduces the working capital in hands of Software product companies, or the need for filling the Softex form (which was relevant in the early days of IT services exports), and which is now redundant as GSTN Invoices already have the required and sufficient data. All that is required is for different departments of the Govt and regulators to connect digitally and share information. The unfavourable tax regime for IPR protection, such as subjection to minimum alternate tax, IPRs being subject to income tax, and not capital gains even when they are held for more than a year is another big irritant. Technology-heavy startups, therefore, tend to relocate to jurisdictions like Singapore and the USA that have a smoother and lower-cost approach. Founders relocating to overseas jurisdictions are typically seen around the time of M&A. One of the reasons relates to taxation: typically, a portion of the financial proceeds arising from an M&A transaction is held in escrow and released to the founders after some time and/or completion of certain contractual obligations. The escrow payments are treated as income by the Indian tax authorities rather than capital gains as other jurisdictions do – this needs resolution.

India is emerging as a global startup hub, with the support of the Govt, with our startups attracting capital and talent while being at the forefront of innovation, jobs, wealth, and intellectual property creation. Brand India is enhanced globally by the success of Indian startups.  With more support from the Government by way of removal of regulatory friction and by providing incentives – fiscal and regulatory –  the ecosystem required to create, enable and grow Indian startups will dramatically accelerate. 

The Ease of Doing Business must be tackled in mission mode with the Stay-in-India Mission (SIIM) being an integral part of India is to secure its rightful place around the global innovation table. 

The blog post is co-authored by our volunteers Sanjay Anandram and Amit Agrahari. You can reach out to Amit at [email protected]

Disclaimer: The article depends upon various pubic data sources apart from credible data sources that are relevant at the current date and time. Readers may like to read this accordingly. 

Data Sources Courtesy: 1. Venture Intelligence. 2. Invest India

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NavIC Grand Challenge Launched by Shri Piyush Goyal, Union minister on 17th May 2022

At the Fourth National Startup Advisory Council Meet held on 17.05.2022 under Hon’ble Minister of Commerce and Industry, Consumer Affairs, Food & Public Distribution, and Textiles Shri Piyush Goyal, the NavIC Grand Challenge (GC) was launched. The GC seeks to mainstream the use of NavIC and establish it as a domestic mapping solution.

iSPIRT has contributed to the development of this Grand Challenge. During the Third NSAC Meet, Sharad Sharma, Co-founder of iSPIRT and a member of the National Startup Advisory Council (NSAC), proposed the concept of prominence to NavIC as a domestic mapping solution.

Later, the iSPIRT Team, led by Captain Amit Garg and our volunteers Sayandeep Purkayastha, Captain George Thomas, and Tanuvi Thakur, presented the concept note and working paper on the GC to DPIIT (Dept for Promotion of Industry and Internal Trade). 

Multiple rounds of discussion among the Department for Promotion of Industry and Internal Trade, Indian Space Research Organisation (ISRO), and iSPIRT Foundation brought the final shape to the working paper. All of this culminated in the launch of GC-NavIC on the 17th of May.

What is NavIC?

NavIC or Navigation of Indian Constellation is India’s independent regional satellite navigation system created by DOS/ISRO. Its signals are inter-operable with the civilian signals of the other navigation satellite systems namely GPS, Galileo, Glonass, and BeiDou. NavIC has made in-roads into civilian applications in India like vehicle tracking, power grid synchronization, location-based services (using mobile phones), disaster alert dissemination, etc. Efforts are being made to enable the incorporation of NavlC into drones, the maritime sector, wearable devices, time dissemination, geodesy, etc. The applications are being promoted by the availability of NavlC-enabled off-the-shelf chipsets & devices at competitive rates and by the adoption of NavlC in national and international industry standards.

The GC is a step towards taking NavIC adoption further into the future, i.e. the future of AtmaNirbhar Mapping Solution. The GC brings together the triumvirate of NavIC, Agriculture, and Drones by becoming a big-bang thrust for the Kisan Drones Project as well.

The GC-NavIC

The GC-NavIC has an intersection with GOI’s Project Drone Shakti. It seeks to promote:

  1. The use of drones to solve the problem of agriculture insurance, i.e., the integration of the product to solve cases under the Pradhan Mantri Fassal Bima Yojana, is in line with the Government’s steps to harness technology for agricultural growth;
  2. Building a digital database of agricultural data that will supplement the digitization of land records and crop assessment measures of Drone Shakti;
  3. The use of ISRO’s homegrown NavIC technology in developing drones under the GC will promote the use of NavIC in the commercial drone landscape for remote sensing, imagery, mapping, etc.

The GC has invited innovative solutions that will utilize NavIC-enabled drones to capture data related to farm field topography, process this data, and make it available for use for commercial purposes. Ideas should be such that the product can be deployed across all terrain types in the country. Further, the captured and processed data should be viable and efficient for use within the Pradhan Mantri Fasal Bima Yojana (PMFBY) framework. 

A detailed application process (here) calls for a detailed proposal of the tech specs of the participants’ product solution. This will be the basis for 25 participants selected for a presentation of their product before the Experts Panel. 7 selected participants on the basis of an objective and transparent selection criteria will compete in Phase 1 of the GC – the prototype deployment stage. In phase 2, the top 3 participants will compete towards fulfilling the problem statement by deploying their fully functioning product.

Transformative Powers of Challenge Grants

Challenge Grants have transformative powers and scalability opportunities that can serve as an impetus to quality innovation. Treatment Adherence for TB was the first challenge launched under the Grand Challenges in TB Control program. The aim was to devise solutions for improving tuberculosis screening, detection, and treatment outcomes. One of the participants, 99Dots, came up with a novel solution for low-cost monitoring and medication adherence program by using a combination of basic mobile phones and augmented blister packaging to provide real-time medication monitoring at a drastically reduced cost. By 2017-18, 99Dots was used across all districts in India and is now listed as a treatment program on the Government’s Nikshay portal.

The GC-NavIC through its intersection with Project Drone Shakti and the revamped operational guidelines of the PMFBY that emphasize tech-based solutions will help harness technology for agriculture and create opportunities for commercial utilization of NavIC. The recent ban on foreign drones by the Government will move the focus to domestic manufacturing. Encouraging local drones with local technology will increase the AtmaNirbhar potential in the drone and navigation ecosystem and enable Indian Startups to unlock the $5 billion drone market.

Conclusion

The GC-NavIC is touted to deliver three essential outcomes – better regulations in the drone and mapping space, ecosystem development, and channel of public money for private innovation.  All three will lead to transformative innovations that will push India into modern agricultural practices and domestic mapping-navigation solutions.

The post is authored by our volunteer fellow, Tanuvi Thakur. She can be reached at [email protected]. 

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Stay-In-India Checklist Index aiming for 5 trillion $ Economy by 2025

What is Stay-in-India Checklist?

The Stay-in-India checklist is a list of regulatory hurdles that makes it attractive for Indian startups to Domicile in foreign jurisdictions like Singapore and USA.

The checklist was prepared by iSPIRT to present the most important issues where respective Government departments or regulators could being in reform to help stop this exodus of start-ups from India.

The checklist is important to achieve the vision and mission objectives of National Policy on Software Products. In turn, it will boost the innovation-driven economy, Ease of Doing Business (EOB) in India, retain and multiply the economic value thereby contributing to the 5 trillion dollar economy goals by 2025.

The issues pertaining to various regulations on making funding of start-ups complex and unattractive, difficult or redundant compliance, ambiguity or unclear notifications etc.

iSPIRT has taken up a  list of 36 issues since 2015/16. Until now out of 36 issues, some have been addressed. Some issues were resolved fully, some partially and about 17 or more issues from the original list are still unresolved.

Note: This blog is a progressive blog to maintain the evolution of the Stay-in-India Checklist and its progression as the issues get resolved by the Govt. of India.

Index of issues solved and remaining

The objective of this blog post is to provide readers in the Start-up community to keep track of issues in this checklist.

We covered many of the resolved issues on www.pn.ispirt.in  and www.policyhacks.in . Ready links given below.

  1. https://pn.ispirt.in/ispirts-stay-in-india-checklist-gains-further-traction-rbi-and-mca-follow-the-startup-india-action-plan/ 
  2. https://pn.ispirt.in/stay-in-india-checklist-successes-so-far-and-the-path-forward/ 
  3. https://pn.ispirt.in/list-of-startup-issues-resolved-stay-in-india-checklist/ 
  4. https://pn.ispirt.in/rbi-allows-convertible-notes-for-startups-from-foreign-sources/ 
  5. https://pn.ispirt.in/external-commercial-borrowing-norms-for-startup-ecb/ 
  6. https://pn.ispirt.in/notice-on-angel-tax/ 

A list of issues pending to be solved is are given below.

1.  Digital Goods and Services Confusion

Authority: MoF and MOC

Status/Explanation:

The digital economy is about “Digital Goods” and “Digital Services”. Even the physical goods are traded through “Digital services” platforms and means. Hence, it is important to get “Digital goods” defined in our legal systems as distinct from “Digital Services”.

National Policy on Software Products (NPSP) was announced in February 2019 promoting Software products with a vision to make India a Software product nation.

Software products possess all properties of “Goods” except that they are intangible. Recognition of Software products as distinct from Software services is paramount to the success of the NPSP and promotion of the Software product industry. In larger shape, this requires a clear treatment and definition of Digital (intangible) “Goods” and “Services”.

Recommendation/Suggestion:

The National Policy on Software Product (NPSP) was announced in Feb 2019 to promote the Software products. The Policy implementation has huge friction owing to the non-acceptance of Software products as separate from Services. To leverage NPSP for the success of the Software product Industry “instituting” this clarity is important.

2. Abrogate Softex forms for SW products

Authority: MoF and MOC

Status/Explanation:

Softex form is required to be filed for export of software. After the GSTN system came into existence, all exporters filed Export invoices and regular exporters filed a letter (LUT) with the Government of India. The GSTN system can be used to track remittances received against each invoice.

Software products are traded based on MRP/list price mechanism in both On-premises and SaaS models and hence does not require any valuation.

Recommendation/Suggestion:

Softex forms is a Redundant process to ascertain Foreign remittances arrivals after the GSTN system is in place. RBI systems should digitally connect EDPMS to GSTN for a homogenous tracking of export proceeds remittances just like Income tax and other systems have done it. This will give way to a homogeneous system across all goods and services.

At the least Softex forms for Software products can be abrogated to ease the business of Software product companies where there is no need of valuation and those listed on the Indian Software Product Registry (ISPR) maintained by MeitY.

3.  Remove TDS on sale of Software products

Authority: MoF

Status/Explanation:

A business can buy a hardware product without a TDS but not a Software, as the purchase of a Software product from Software companies are subject to TDS at 10% of all receipts under Section 194J.

The refund of this amount only happens after filing their IT Returns in September of each year, with this delay causing hardship in terms of working capital.

In the case of SMEs and Start-ups, it is hard to receive working capital loans from banks or NBFCs. For SaaS business the transactions are online and it is not possible to map TAN numbers at the time of online transactions and tracking of TDS on all transactions.

Since all profitable businesses with more than 40 lakh turnover are filing GSTN invoices, the tracking can easily be done through the GSTN system of each invoice amount and mapped to the income tax return filed at year-end.

Recommendation/Suggestion:

No product is subject to TDS when sold by producer to channel partners or end consumer. Software Products are subject to this sale. CBDT mixes this TDS with other TDS issues hence is reluctant to remove it. Income from Software products should not be classified as Royalty income and “Software Products” should be treated as “Goods” as defined in constitutions. This again requires recognition of “software products” and a Solution to this problem.

4.   Setup HSN Code for Software Products

Authority: MoF

Status/Explanation:

Software products are intangible goods and keeping and treating them with Services in SAC list will not be able to help in creating a “Software product Industry”. They have to be classified as “products”.

Presently Software is classified in HSN code based on the medium on which it is physically supplied. The intangible Software is not defined in HSN and for domestic purposes, the Software product companies use Service Accounting Code Services Accounting Code (SAC) list which is not internationally harmonized. Hence, the trade of Software products can’t be homogeneously measured.

Recommendation/Suggestion:

HSN code mechanism is only used for Physical goods. However, in order to promote “Software products,” some countries are giving treatment to “Software products” and “Digital goods” under chapter 98, 99. India should also create a provision for “software products” HSN code until a harmonious global system is developed for “Digital goods” (including Software Products).

5.  Level playing in B2C Sales of SW products

Authority: MoF

Status/Explanation:

Although there are mechanisms laid to report sales in India for foreign companies (non-resident taxable person), yet a lot of business of Software products especially in apps business happen in B2C area from not so popular brands. As a result, the Indian “Software product” companies have a non-level playing field as they have to comply with the GST regime of 18%.

Recommendation/Suggestion:

Provisions should be made to relieve the B2C sales of Indian “Software products” from heavy 18% GST for the advancement of “Digital India” and especially new post-pandemic digital and Gig worker economy.

6. Favourable Tax Regime for IPR

Authority: MoF

Status/Explanation:

In the past several years, India has experienced increased capabilities of innovative, creative and capable young professionals for creation of significant and valuable IPR. At the same time, India has also seen that the ownership of such IPR usually does not reside with Indian companies or in India.

Whilst there are several ‘non-tax’ reasons for this loss of ownership in favour of other jurisdictions, tax remains one of the major reasons. As a result of the huge negative tax impact, Indian companies constantly look to hold their IPRs for worldwide use in a jurisdiction which is more favorable from a tax perspective. Some of such notable jurisdictions are: Ireland, The Netherlands, Switzerland, and Singapore.

Further, governments of certain jurisdictions are aggressively targeting Indian companies to house their IPR there. For instance, a majority of Indian software product companies prefer to set up base in Singapore given the incentives offered by the Singapore government and the aggressive marketing by the Singapore government.

It is noteworthy that in the case of technology companies, IPR is one of the most (if not the most) important assets. Accordingly, technology companies usually follow their IPRs and establish base in jurisdictions that are most favourable for IPR. Lacking this, India has seen most of its technology companies shifting base to jurisdictions such as Singapore.

Creating a favourable tax regime for intellectual property is, therefore, extremely important for retaining technology companies in India.

This is partially covered in the Budget announcement, which provides that income by way of royalty in respect of a patent developed and registered in India will be taxed at 10%.

Recommendation/Suggestion:

Further action also needs to be permitted-

  • Such companies should not be subject to minimum alternate tax. However, such companies should be subject to dividend distribution tax as may be applicable to all other companies;
  • Transfer of IPR so developed and owned, or acquired and owned should result only in capital gains and be taxable as capital gains. Such IPR should be characterised as a long term asset if held for more than 3 years as is the case for other assets;
  • For self-generated IPR, the holding period should start from the date an application is made under the IPR laws for its exclusive ownership, viz, copyright, trademark or patent registration.

7.  Informal Guidance Mechanism & appellate authority at RBI

Authority: RBI

Status/Explanation:

This needs to be pursued. The RBI helpline announced recently does not resolve this issue, as it does not contemplate making RBI approvals/rejections public or appeal process for parties aggrieved by an RBI decision.

While public notification of RBI decisions has been announced for compounding orders, it is yet to be done for cases of approvals/rejections of applications under FEMA (on a no-names basis).

Recommendation/Suggestion:

In our discussion with authorities, it was suggested that instead of codifying laws on aspects like round tripping, it is better to have an informal guidance and appeal procedure at RBI, similar to SEBI. This needs to be pursued.

8. Filing of Form FC-TRS – post-transfer requirement

Authority: RBI

Status/Explanation:

In terms of the FDI policy, a transfer of shares of an Indian company between non-residents and residents can be taken on record by the company subject to it receiving endorsed form FC-TRS. While the filing of this form has been made online, it still takes a few days’ time for the AD banks to review and approve the form.

Thus, the transfer of shares cannot be recorded by the company (despite the purchaser remitting monies to the seller and completing all other formalities) until form FC-TRS is endorsed/approved by the AD bank. At times, this process takes months (there are substantial delays even after the filing process has been made online).

Recommendation/Suggestion:

Since FC-TRS filing is online now, there should not be an issue in making it a post-transfer requirement.

9. Collection of monies by a resident on behalf of a non-resident to be permitted

Authority: RBI

Status/Explanation:

The Foreign Exchange Management Act, 1999 (FEMA) prohibits any person to make any payment to or for the credit of any person resident outside India in any manner. As the nature of commerce has undergone major change and many services and goods are being delivered through aggregators using online or mobile media, there is a need to re-look at this provision. Essentially, in all aggregator arrangements, the aggregator acts ‘on behalf of’ the seller to collect payments and provide selling and/or ancillary services.

Recommendation/Suggestion:

Presently, only start-ups have been permitted to collect monies in India on behalf of their foreign subsidiaries. This needs to be permitted for all companies, and also on behalf of any other entity (regardless of such entity being a subsidiary).

10. Acquisition by residents of overseas companies with an existing subsidiary(ies) in India to be permitted

Authority: RBI

Status/Explanation:

Presently, there is uncertainty on the meaning of “round-tripping” in relation to such transactions.

Recommendation/Suggestion:

“Round tripping” is usually invoked when an Indian company acquires a foreign company, with an existing subsidiary in India.

It needs to be clarified whether the transfer of shares between an overseas subsidiary of an Indian company and a third party falls under any compliance/approval process under FEMA.

Also, there is a limitation on foreign investment by resident individuals in association with the ‘Indian Party’ in only operating entities. This may be done away with.

The RBI policy announcements contain only the following generic statement: “Streamlining of overseas investment operations for the start-up enterprises”. The aforesaid specific actions need to be performed.

11. ODI JVs/WOS investing back into India to be permitted where it is a genuine business requirement and bona-fide investment

Authority: RBI

Status/Explanation:

There is uncertainty with regard to “round-tripping” in such transactions.

Recommendation/Suggestion:

Such investments should be permitted (under the approval route, if need be) on commercial justification.

The following transaction may be specifically permitted:

  •  Bona-fide acquisition of existing structures having a leg in India; or
  •  Where the Indian investment is made for bonafide commercial reasons out of funds earned/raised overseas without Indian guarantee and is in 100% FDI automatic route sector (e.g. infrastructure).

Further, setting up an overseas structure under the ODI route to raise equity capital for investing back into India should be specified/clarified to be a bonafide and permitted overseas investment.

Since there is no bar under the extant regulations, entities which have overseas JVs / WOS which have downstream investments in India should not be subject to punitive action.

Individuals should be allowed to hold shares in foreign entities with step-down subsidiaries, subject to the investment in the foreign entity being a specific fraction (and not the whole of) of foreign funding received by step-down subsidiaries.

To permit Investments up to a specified limit (eg USD 10 million) by companies (regardless of their net worth) in overseas entities.

Again, the RBI policy announcements contain only the following generic statement: “Streamlining of overseas investment operations for the start-up enterprises”. The aforesaid specific actions need to be performed.

12. Late filing to be allowed for subsidiary formations by start-up founders

Authority: RBI

Status/Explanation:

Currently, this is not permissible.

Recommendation/Suggestion:

Lot of founders who set-up subsidiaries abroad and have not compiled with RBI, should be allowed an automatic route through late fees.

13. Restriction on FVCIs to invest in all sectors to be removed and brought in line with FDI policy

Authority: RBI

Status/Explanation:

Presently, FVCIs are permitted to invest in only certain sectors.

Recommendation/Suggestion:

In terms of RBI/2016-17/89/ A.P. (DIR Series) Circular No. 7 of 20 October 2016, FVCIs are permitted to invest only on ten sectors (viz., Biotechnology, IT related to hardware and software development, Nanotechnology, Seed research and development, Research and development of new chemical entities in pharmaceutical sector, Dairy industry, Poultry industry, Production of biofuels, Hotel-cum-convention centres with seating capacity of more than three thousand, and Infrastructure sector).

While RBI (under the above circular) has exempted start-ups from this restriction, other companies also need to be exempted from this.

14. Limit on acceptance of deposits from shareholders to be removed for private companies

Authority: MCA

Status/Explanation:

Under Section 73 of the Companies Act, private companies are allowed to accept deposits from their shareholders up to 100% of their share capital and free reserves. However, since most start-ups require constant funding during initial years, and do not have free reserves, such limits may be removed for them.

Recommendation/Suggestion:

The Companies Law Committee Report recommends removal of this limit for all start-ups. However, fine print is awaited.

15. Grant of ESOPs to promoters and independent directors for all private companies

Authority: MCA

Status/Explanation:

The provisions of the Companies Act do not permit companies to grant ESOPs to promoters or members of the promoter group or independent directors. There is no rationale for this restriction as the promoters essentially function as employees of the company. Further, through multiple rounds of fundraising, the stake held by the Promoters would have significantly diluted. Also, to get good professionals to join as independent directors, it is important to issue them ESOPs as payment in cash for compensating them is a burden on the company’s resources.

Recommendation/Suggestion:

Provisions of the Companies Act need to be amended to permit issuing of ESOPs to promoters and members of the promoter group and independent directors. Management ESOP should be permitted for unlisted companies to keep the Promoters incentivized and motivated. Likewise, the role of advisors is critical for the success of the ventures. Equity seems to be the only logical form of incentive, given the lack of liquidity.

While the MCA has permitted the issuance of ESOPs to promoters for start-ups, this needs to be permitted for other companies as well. Also, the issuance of ESOPs to independent directors needs to be permitted as well.

16. Taxation of gains from sale of ESOPs as salary or prerequisite (leading to very high tax at present)

Authority: MCA

Status/Explanation:

The ESOP regime in India is geared more towards listed entities, which have a liquid market, as opposed to start-ups. Section 17, IT Act 1961 and Rule 3, IT Rules 1962 deal with the taxation of ESOPs. First, the employee is subject to tax at the time of exercise of option – i.e. this tax is payable immediately even if the employee has not sold the share in that tax period. The magnitude of the tax is calculated on the notional gain between the acquisition price of the share (option strike price) and the fair market value (FMV) at the time of exercise. Secondly, the nature of such gains is considered as salary or perquisite. This means that the employee may be payable for ordinary income tax – 30% (excluding surcharge and education cess), calculated as per the marginal income tax rate) for the notional gains calculated above. This causes an economic outflow in the hands of the employee upon exercise, which is funded by debt or is at times even declined due to this reason. This is especially acute since the shares they hold don’t have the same rights as those offered to Investors.

Recommendation/Suggestion:

Amend Rule 3(8)(iii) of the Income Tax Rules, 1962 and as follows (insertion in bold) “In a case where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker or accountant on the specified date as per Rule 11UA(1)(c)(b), provided such fair market value shall not be less than the exercise price ”

OR

Tax incidence should arise in the year of the sale of shares (not the year of exercise of the option). Profit made on sale of shares should be treated as capital gains (vs. the treatment as a portion of the gains as salary or perquisite).

17. Dividends from overseas subsidiaries taxed again in India

Authority: MoF

Status/Explanation:

Dividend received from overseas subsidiaries is taxed once again in India as income in the hands of the company. Also, while the rate of tax on such dividends for certain companies is 15% (as against 30%), the same exemption is not provided to limited-liability partnerships and individuals.

Recommendation/Suggestion:

Thus, tax levied on dividends from overseas subsidiaries should be discontinued, for parent companies incorporated by resident Indians in India.

18. Fair market value tax

Authority: MoF

Status/Explanation:

Any investment above the ‘fair market value’ (as may be determined by the Income Tax Authority at a future date) is treated as income for the company and is subject to income tax. This impacts angel investments at high valuation, as there is a risk of the Income Tax Authority determining such investment as above fair market value and requiring the company to pay tax on the differential.

Recommendation/Suggestion:

Start-ups have been exempted from this tax. However, the certification process to be recognized as a start-up is cumbersome and needs to be relaxed.

19. Harmonisation of tax policy for listed and unlisted equity instruments

Authority: MoF

Status/Explanation:

Listed Securities have a holding Period of 12 months for LTCG whereas for Unlisted it is 24 months Unlisted securities have a tax rate that is twice the rate of their listed counterparts, and the surcharge applies on the sale of unlisted securities while it is exempt for listed securities.

Recommendation/Suggestion:

Globally, the differentiation in tax treatment on listed and unlisted securities is not prevalent. Unlisted securities are more illiquid and riskier as compared to listed securities. They should have the same tenure of holding and the same tax rate on the same. There is a disparity in the tax rates applicable for capital gains on the sale of listed securities (12 months) vis-à-vis sale of unlisted securities (24 months). Dematted Unlisted securities of start-ups or companies that were registered as start-ups can also be subject to STT (or the new Stamp Duty regime announced in February 2019) in order to harmonise the tax treatment of both listed and unlisted securities.

Disclaimer: The discussion and ideas expressed here should not be construed as legal advice. The discussion is conducted with Industry practitioners and experts for purpose of benefiting the Industry members in the Software product, Start-up ecosystem and other related  industry sectors

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Mapping Policy a major Progressive reform for Digital India

Almost everything in the tangible world has a location attached. In the future Data Economy, map information is going to be one very important piece of information.

The Government of India announced a policy and new guidelines of using Mapping and relaxed the Policymaking it simple enough, aiming at unbundling the economic value across all sectors in the economy. 

Click here to read the entire notification issued by the Ministry of Science and Technology, Government of India.

iSPIRT organised a panel discussion on the policy announcement to understand the policy and its importance for India. This blog post is an exciting read and listen for young innovators wanting to reimagine the economy as almost each and every thing will require mapping.

Following participants took active part in discussions.

  1. Lalitesh Katragadda, Co-Founder of Indihood
  2. Umakant Soni, Co-founder & CEO of ARTPARK (AI & Robotics Technology Park), AI Foundry
  3. Mohit Gupta, Co-Founder of Zomato
  4. Sudhir Singh, Volunteer at iSPIRT (Policy Hacks Anchor)

Recorded Video Transcript

Subsequent to introduction, Sudhir Singh (anchoring the Panel) opened the discussion asking Lalitesh Katragadda to explain important features of Policy announced.

Lalitesh explaining the policy salient features said “all the other Map’s policies that used to exist in various departments currently stand null and void, and they are replaced by this one very simple policy that has been issued, and people who embark on Mapping don’t have to worry. 

He further added, “ if you are Indian company you can map anything except for a small blacklist of attributes and features that you should not map, I’m sure will be related to military and security. And, you can map using whatever technology that you want, you can use lidar, you can use high-resolution cameras, underwater, over water, anything. You cannot just create Maps you can disseminate, sell and distribute.” 

“The only restriction if anything is that international mappers are restricted to a higher level of resolution for security purposes and they can also have access to high resolutions Maps created by Indian entities. This new policy is so simple that it creates freedom to map”, he said.

Mohit Gupta said, “for me the most important thing is Government taking notice”, and “coming to an understanding about the digital infrastructure required to build high-quality businesses and services across a large spectrum of different areas”.

He also expressed his happiness on the news that the Indian Space Research Organisation (ISRO), a Government organisation and MapmyIndia a private Indian company are collaborating.  

Mohit Gupta informed that they tried in the past, experimenting with various different players who provide mapping services both Indian and international and understand the importance of alternative options to handle both the precision mapping and business economics.

Umakant Soni started the discussion by quoting an example of google maps and how they had increased the cost from free to 10X to 20X and made it expensive to use their service and almost single-handed dependence upon them.

He said that, “fundamental thing that was different in the mobile revolution was the use of location” and that, “the immersion of the digital world into the physical world started with the whole mobile revolution and I think Zomato and Ola kind of companies have actually really profited from that”.

According to him, If out of every ₹4 that a business earns out of its services, it is spending ₹1 on mapping, then it is tough to sustain certain kinds of business models. Hence, it is a great move to create more options, thereby reducing the price in the long-term and benefit the Indian consumer.

He gave a perspective on the amount of value mapping technology and applications can unlock. Quoting the survey he explained 90% of the value lies in intangibles and this is not possible to unlock this value without having easy reformative mapping policy, that will help India to build the 5Trillion 10 Trillion Economy. 

“The challenges that we are at 3 trillion, wanting to go to 10 trillion, and we are talking about additional 7 trillion out of that 90% i.e. 6.3 trillion is going to be in the digital domain. If you’re not own the critical pieces which are going to create the intangible assets,  we will not be reaching 10 trillion. We might actually get to 3.7 or 4 trillion that’s it in another 10 years” explained Umakant.  

The other perspective on the value that Umakant gave was on how Google is inherently underestimating its business targets of 5 billion revenue from mapping. Quoting Baidu’s estimates from China, he explained that more than 70% of this value is lying in the future data economy, where location and mapping data will actually flow from sensors, almost everywhere in our lives. According to him, this data will augment the present Satellite imagery and physical mapping. 

“You will be able to catalogue and tag every single object that you see in the physical world around you and that is the future of mapping, and this policy, actually unleashing this whole system of innovation that is now possible because this tiny little camera has got lidar,  you can actually see a single object, and that’s where the computing moving onto the edge”, said Umakant. 

He further added that “I mean we have not even started to comprehend what it might be”, And  “that’s why it’s great news for Indian start-ups founders. What is next right after the mobile revolution, I think Maps. You know combined with AI and robotics they are going to form the next big wave of change in terms of massive business potential we have”, said Umakant.”

On the question of whether we can go International, Lalitesh answered,  “when we have the best mapping technologies available and that will only happen if we start in our own backyard.” 

He had further explained that according to a rough guess not more than 15% of India is mapped and we need to map everything that matters in India for development. According to him, there is a lot of work to be done, it won’t happen with just one company building it. 

He further added that “democratization can only happen if the underlying layers become accessible which is both coverages has to increase quality has to increase and that can only happen with large amounts of innovation” and making it as easy as creating websites’.

‘So, I am looking forward to a world where we have you know hundreds, if not thousands of mapping innovations coming”, he added. 

Mohit expressed his agreement with Lalitesh on how unmapped India was and explained the Challenge it posed to them in food delivery even to urban dwellers. 

He went on to explain how they had to innovate and add a pre-recorded voice (audio instruction) message for consumer location to solve a problem of precision mapping.

He said that the “Audio instructions “we had to launch and are being used very widely, the last mile addresses and ability to get last-mile addresses accurately is very poor as a result a lot of our riders would end up calling customers for last-mile instructions.”

“Reality is that, there is a lot of ground to be covered for maps”, he added. 

He also informed that they do not like over-dependence on a single player and hence has been doing a pilot almost every year with MapmyIndia. He felt that MapmyIndia has also a room to improve and become competitive to existing major services. 

Sudhir posed a question on how easy it will be to use maps and if the process of using mapping information will be as stringent as existing offline maps, which sometimes require the approval of a senior official like joint secretary of Government of India, to obtain a physical map and use. 

Lalitesh answered, “policy calls for all the government agencies cooperating, obviously if not of security sensitivity, which is most of the mapping data, to be made accessible to Indian company I’m hoping see changes coming” 

Maps that you can depend on how to run on good quality data otherwise they will fail so so this is really enabler I don’t look at the map a product at the map enabling piece of infrastructure that every you know digital entity in India needs to have access to 

Lalitesh further went on to explain how mapping can change lending, by using mapping in property and land record.  According to him, it has the potential to unlock more than 4 and a half-trillion dollars of capital both for small business.  

****The End****

Disclaimer: The discussion and ideas expressed here should not be construed as legal advice. The discussion is conducted with Industry practitioners and experts for purpose of benefiting the Industry members in Software product, IT or ITeS Industry

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iSPIRT’s Official Response to Non-Personal Data Governance Framework

A Committee of Experts under the Chairmanship of Shri. Kris Gopalakrishnan has been constituted vide OM No. 24(4)2019- CLES on 13.09.2019 to deliberate on Non-Personal Data Governance Framework. Based on the public feedback/suggestions, the Expert Committee has revised its earlier report and a revised draft report (V2) has been prepared for the second round of public feedback/suggestions. iSPIRT had provided a past response to the previous report and in this blog post contains a response to the revised report. 

At the iSPIRT Foundation, our view on data laws stems from the following fundamental beliefs: 

  1. Merits of a data democracy (that is, the user must be in charge)
  2. Competitive effects must be well understood, for creation of a level playing field amongst all Indian companies, and some ring-fencing must exist to protect against global data monopolies
  3. Careful design enables both high compliance and high convenience

It is with these perspectives that we have analyzed the revised Non-Personal Data report in our response.

Key Sources of Ambiguity in the NPD Report 

The key sources of ambiguity in the report are: 

  1. Purpose of techo-legal framework for Non Personal Data: The non personal data framework is meant to provide the right legal and technology foundations for world class artificial intelligence to be created out of India for the betterment of financial, health, and other socio-economically important services. The current version of the report sidesteps this completely by constraining the applicability to only “public good” purposes rather than taking a holistic approach to “business & public good purposes” 
  2. Data Business entities need a harmonised definition (given the interplay with data fiduciaries as proposed in the MeitY Personal Data Protection Bill) and clear incentives for participation. The current report relies excessively on regulation & processes for data businesses to achieve the outcome. 
  3. Institutional structure for Data Trustees: The report restricts Data Trustees to government agencies and non-profit organisations; however, in a domain consisting of fast evolving technology by excluding the private sector in offering the base infrastructure creates a severe limitation on the ecosystem of modellers that can be created. 
  4. Technology Architecture: The illustrated technology architecture is unclear around the public infrastructure (through the form of open standards, public platforms, and others) that need to be created & adopted to bring to life the non-personal data ecosystem in an accelerated manner. 

Conclusion

While we’re aligned with the vision of the committee, it’s critical that the above ambiguities are resolved in order to create a strong non-personal data ecosystem created in India. Till these ambiguities are resolved, the recommendations of the Report should not be operationalized.

For any press or further queries, please drop us an email at [email protected]

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IGP (Innovative Growth Platform): The Capital Enabler

Two Cs are extremely critical for startups: Capital and Customers. In India, with a population of 1.3B, customers for B2C or B2B2C startups is not an issue. For B2B startups, although the market in India is promising, global markets are still very important.  Capital on the other hand is trickier. The total capital raised by startups India from 2010-2020 is around $100B. In the same period, startups in China have raised 4x and startups in the US have raised 10x the capital raised by startups in India. India needs to have a stronger mechanism to enable more Capital. There is a need to increase Capital availability in India.

IGP platform proposed by SEBI is a very refreshing initiative that aims to address the Capital issue. It provides another great avenue for startups looking to raise series B and beyond. This platform can double the available capital over the next 5 years. It addresses a key pain point of Capital availability for startups raising between INR 70 to INR 200 Cr. There is a chasm in this space- there are early-stage VC funds and there are PE funds for growth companies. However, there is not enough growth stage VC funds in India to fill this gap. IGP has the potential to be the platform to bridge this void.

The design of IGP has been very thoughtful with the key focus is on technology startups. The precursor to IGP was ITP (Institutional Trading Platform). Due to various reasons including the maturity of the startup ecosystem, the response to this platform was tepid. IGP addresses a few key pitfalls of ITP.

IGP restricts the listing to technology-focused companies with a proven Product-Market Fit and entering its growth phase. The revenue of the companies listing on this platform is expected to exceed INR 50 Cr. This will greatly help in mitigating the risk of listing by ensuring a good understanding of Product-Market Fit beforehand.

The governance issues are well balanced – protects the investor interests but at the same time provides enough flexibility for the founders to have control over strategy and execution. The companies listing on this platform cannot be burdened with the same rules of the public markets as they need to be very nimble. A balance between taking risks and moving fast with financial discipline as against governance practices such as quarterly reporting and stability is advised.

As in the case of investments in Alternative Investment Fund, the platform is selective about its investors. The companies listing on this platform need to operate as startups and not as mature companies. The risks are much greater with these companies and hence it is very critical to have investors who understand these risks and who can understand these nuances. 

M&As have been a key hurdle for startups in India. This is one of the key reasons for companies opting to flip. The platform is designed to simplify the process of M&As, post-listing. Simplifying the M&A process encourages corporates and PEs to participate on the platform. However, this spirit should be maintained in the implementation of the platform as well.  This is one of the critical success factors for the platform.

For the Indian startup ecosystem to become one of the major contributors to the economy, key policy changes are needed. IGP is one such platform that has the promise to increase capital availability significantly.  IGP has the added advantage of enabling exits for early stage investors. This increases the liquidity in the market that will further spur the startup ecosystem- a much needed virtuous cycle.

NASDAQ encouraged and enabled technology startups to list because of its adaptability and easier listing and governance guidelines. This accelerated technology startups in the US. IGP has the potential to be that platform in India. India can build products for the world and has the potential to be startup capital, but it needs a perfect storm of- Capital, Liquidity, Policy, Customers, and Entrepreneurs. IGP certainly has the promise to address the Capital and Liquidity aspects. Most importantly it enables Indian startups to stay in India!

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PM WANI – Empowering people with Wi-Fi Internet

Wi-Fi Access Network Interface (WANI) that was envisaged by TRAI Consultation papers has become a reality as Government approved it as PM WANI, on 9th December 2020, for exponential proliferation of public Wi-Fi networks.

PM WANI will make it possible millions of Wi-Fi hotspots to emerge across the country, giving easy access to internet to common man. New business models will emerge, making it possible to add another layer of Internet providers with access points being provided by corner shops and stores and others.

The Detailed Document about the Scheme can be downloaded and read at (Click to open) Department of Telecom Site.

The simplicity of the scheme is recognised by the very fact that DOT automatically recognised PDOA after application in 7 days.

PM WANI explained in a snapshot

This PolicyHacks Panel discussion with Dr. RS Sharma, Ex-Chairman TRAI, Pramod Varma, iSPIRT Volunteer, gave conceptual Architecture of WANI, Siddharth Shetty, iSPIRT Volunteer, Shubendu Sharma, Founder of Wifi Dabba and Dr. Ajay Data, Founder & CEO of a Class A ISP and other technology companies.

iSPIRT has been a protagonist of the concept of WANI with Pramod Varma, Siddharth Shetty and other volunteers involved in building the concept to unbundle another layer of broadband level Internet access to masses on the go and in far-flung areas.

Dr. RS Sharma explains,”we came to a conclusion that if we can create a technology architecture for some body to market and provide access by unbundling from ISPs like UPI has done, then it will become seamless and easy to implement and Kirana shops can also provide Wi-Fi without hassle”

“And that is how we came up with the concept of PDO like PCO of Telephone booths and PDOA etc”, he added explaining how PDOA will be a layer above PDO.

The main policy issue here was reselling of the bandwidth, which was addressed and then a consultation papers was evolved and a pilot done to test the concept on ground, he mentioned while explaining how TRAI was involved.

“It is a very asset heavy architecture if a Telco alone has to do all that physical investment till the last wire in your house or each hotspot in country” and “all the fiber in BHARATNET and others that we are laying no body knows at the the end, what we have to do and it requires an ‘entrepreneurial model’ to scale to be putting millions of connection” said Pramod Varma.

In Covid year, we have seen real hardship for people who are not privileged to have broadband access and education of children abruptly stop. “We have to make Connectivity a human right”, says Pramod Varma and explains, that is why, how essentials it is to invest into infrastructure and the last mile becomes people property.

“We had the mental model that, if we can create self sustaining interesting parts of it” Said Pramod, explaining how the concept was evolved. Adding further, that a KYC done ones can give a KYC token that can be used to further to authenticate who the person is on access layer in the Model, without doing KYC again and again. “UPI will further provide the payment model, as we have already solved it”, said Pramod.

“You will have multiple providers come together to unbundle this” Said Siddharth Shetty, adding to the conversation.

Shubendu, from Wi-Fi Dabba who had been thinking this as a ‘business model’, deployed the pilot for testing the concept. Explaining his experience, he said, “we wanted to see if we draw a Internet cable from a router in our office to street side shop, how it is used by people, can people pay for it and use it and in a week we had people instead of buying eclairs asking for a Token to use Wi-Fi”.

“In 2016, we took it as a fulltime project, and this was the time when our problem started as ISPs stopped giving us connection, after knowing we were reselling bandwidth” said Shubendu.

He also explained that, “the kind of paperwork you have to maintain and additional costs you have to incur” does not make it viable for small business to apply for an ISP.

“This policy make life simpler for businesses like us” in entirety, added Shubendu.

Dr. Ajay Data, who founded a Class A ISP in Jaipur, was on panel and said, “I am ‘very positive’ about it and this can revolutionise many many things in this Country”.

He explained, how the product “Vedio Meet” they developed to solve local education problem did not work on HD quality for students in last mile and had to be downgraded to SD quality, because of bandwidth in last mile. “we need to have the internet of the ‘streaming quality’ across country, where HD streams can be delivered on any device and if we can achieve this, rest of the applications will work ” said Ajay Data.

He raised apprehensions, on how it will be regulated on ground without harassment of the PDOs by regulatory bodies, giving examples of how even licensed ISPs are harassed and ISPs are charged AGR even in on sale of Computers and routers. Similar legal issue should not be left unaddressed and should be taken care, in languages (including vernacular medium) for PDOs to be not harassed.

“May be a board (Certificate) can be out in each PDO point to ascertain that local police and enforcement does not harass them”, said Ajay Data.

RS Sharma, addressing concerns raised by Ajay Data, Said, “PM himself has tweeted about this” and leadership knows the exact importance of the policy.

He further explained that, “Retail sale of bandwidth has been made passthrough in the AGR Computation”, either the TSPs or ISP pays for the 8% AGR, retailer has nothing to pay, as it has been already paid for.

Dr. Sharma also explained further, that it can save lot of bandwidth, as content can be maintained locally at local access points and last mile user need not traverse through the upstream network for local content, which is a very useful concept for ISPs and TSPs, to decongest the upstream networks.

The PDOs will not have any problems, as the responsibility of who is accessing what by monitoring SSIDs will lie with PDOA (aggregator), not with PDO.

Shri Sharma added that, “what is important is this is implemented well” sharing the issue with Ajay that many a times polices are misused. And we all hope good intentions will prevail and country will be benefited, he had added further.

The panel discussion ended with note of thanks.

Disclaimer: The discussion and ideas expressed here should not be construed as legal advice. The discussion is conducted with Industry practitioners and experts for purpose of benefiting the Industry members in Software product, IT and Telecom sectors.

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New OSP Guidelines – a major reform (Ease of Doing Business)

The new guidelines on Other Service Provider (OSP) issued by DOT on 5th November is one big step taken by Government of India under leadership of Prime Minister Modi in Ease of Doing business for IT and ITeS sector.

You can find the DOT publication here https://dot.gov.in/sites/default/files/2020_11_05%20OSP%20CS.pdf 

iSPIRT Organised a Panel discussion in PolicyHacks to understand the changes that have been announced and how they impact the Industry.

The panellist included
1. Shri R.S. Sharma, Ex-Chairman TRAI
2. Rahul Matthan, Partner, Trilegal
3. Shanmugam Nagarajan, Founder and Chief People Officer, [24]7.ai
4. Chocko Valliappa, CEO, Vee Technologies
5. Sudhir Singh, Core Volunteer, iSPIRT, Policy Hacks Host

The panel discussion can be watched at below given Youtube video or you can read through the excerpts of the discussion given below in this blog.

Background

IT and ITeS companies looking for seamless cross border communication between the Indian Centers and their foreign counterparts centers use a telecom circuit service (IPLC, MPLS, Sip trunk), obtained from an Indian Telecom Service Provider (TSP). Traditionally, they were supposed to apply and get registered as OSP. The application and approval process were cumbersome and required them to submit detailed network diagrams and satisfy that authority of a legitimate use of the Circuits. The process was cumbersome, more bureaucratic than technical in nature and often subject to undue harassment by TERM cell even when use was fully legitimate.

Industry has been demanding this reform for long, as the Circuits were always subscribed through a licenses TSP in India. The Reform will give way to a new era of opening in telecom services. It is most likely to benefit IT and ITeS industry the most, boost innovation and synergistic alliance in Industry. Most importantly this will make India more attractive for FDI, as this was one major irritant in deploying most important part of the International operations i.e. International Communication.

The move will not only help large offshore IT and BPO Centers but also will empower domestic Software product companies. It will give a huge impetus to work from home and hence will be very instrumental in promotion of SaaS industry, both for their internal operations and also promote SaaS product adoption.

Some of the main highlights of this decision are.

1. No need for a Registration any more to operate as an OSP

2. Interconnection of multiple OSP centers and remote agents

3. Work From Home and Remote locations allowed

4. Centralised Infra and consolidated Traffic between Indian POP and International POP

5. Sharing of EPABX and PSTN lines by domestic and International Center

6. Distributed Architecture with main Infra at central POP and media gateways at other centers

7. CUG allowed for internal Communication

8. CDRs, access log, configurations of EPABX and routing tables to be maintained and aggregated for each media gateway for a period of one year

9. No toll bypass allowed and no telecom services to be provisioned

Excerpts of the Panel Discussions

The panel discussions started with a round of Introduction and inviting Rahul to summarise the new regulations.

Rahul Matthan started the panel discussion with a summary of the guidelines announced. He termed the new guidelines issued as Radically simplified.

Starting the introduction to new Guidelines, he said, “OSP or the Other Service Provider regulation in essence regulates Business Process Outsourcing companies and the definition of the types of entities that are regulated by this is very important. Earlier the definition used to include things like call centers, Business Process Outsourcing and other IT services, but also had very broad language at the end which included all IT enabled Services.

So, the first amendment is that it’s been restricted now to voice based business process outsourcing services.”

“The second very significant amendment that has happened is that the registration requirement has been entirely removed. Earlier you had to register with the TERM cell of DOT and that that requirement has been entirely removed,” Said Rahul.

He further mentioned that work from home (WFH) is allowed without any restriction of site or permissions and submission of network diagrams. He added. “it is work from anywhere” and “also, infrastructure sharing has been permitted there are some significant changes in the interconnectivity regulations have been permitted”.

“Bank guarantees used to run into crores for many large companies. The requirement for submitting performance bank guarantee has now been removed”, mentioned Rahul.

He also informed that the general provisions about penalty provisions with regard to inspection have been removed. “In fact, the entire chapter with regard to penalties and inspection has been removed”, mentioned Rahul.

Shri RS Sharma informed the panel how the consultation papers and discussion at TRAI on the subject progressed at TRAI. He informed that whereas the OSP regulation was very old, TRAI got a reference to start the consultation process in September 2018 and the Consultations were submitted by TRAI to DOT in 2019, which is exactly one year back.

“Essentially thought which we had was OSPs are the ones who are the customers of the TSPs telecom, they are paying money to the main service provider which is the TSP, so why should we really come in between and you know ask for all kinds of you know compliance” said Ex-TRAI chief, recalling developments.

He further informed that, next thing that was taken up is the definition, and as these are the entities which are taking resources from the telecom service providers or ISP and actually doing somebody’s work or providing services to some other entity, they should all be called application service providers (ASPs).

“Unfortunately, the OSPs also included those people who were actually providing services internally. We said any entity which provides service to itself after taking resources from the telecom service providers will not be coming within the definition of logical OSPs”, Said Shri Sharma.

He also recalled that it was recommended that everyone need not register, and only voice based OSPs need to be registered, Data based OSP need not be Registered.

The new definition given at chapter 1 point 7 states these recommendations. As said by Rahul earlier, the new guidelines limit OSP to voice-based processes only.

Shri Sharma further recalled that the TRAI recommended the removal of the requirement to submit network diagrams in OSP registration. He also further mentioned that TRAI also took a stand not to include hosted contact center service infrastructure or cloud hosted infrastructure, in OSP application scrutiny.

Shri Sharma said,” Interestingly in the last 10 years not even a single bank guarantee has been encashed.” He said bank guarantee was the most ridiculous part of the provision, as Govt. was not earning any revenue from OSP,

Similarly, he recounts the recommendations made on interconnectivity among the various OSPs, that also we said should be allowed. “I feel really satisfied”. Said shri Sharma, citing that most recommendations have been accepted.

In further discussion, Sudhir added that we were not having regulation at par with the developed world and called Rahul to give his perspective on regulatory aspects of OSP provisions.

Rahul emphasised in past Data was scarce and a licenced kind of regime was brought in with some sort of a performance guarantee to ensure compliance. Data today is not scarce and with the advent of smartphones and choices one has to make calls, the OSP regime was just giving comfort to the Inspector raj of the TERM cell.

“Country ran out of static IP Addresses”, said Rahul, when it tried to tackle the work from home during the Pandemic. Although DOT cooperated in providing relaxation, the actual need was to remove regulations relating to logical separation between Voice and Data and the need for physical EPABX.

S. Nagarajan, joined the discussion and said, “antiquated rules only hurt the industry by not letting us expand freely within the country. We are in other countries like Colombia, Philippines, Guatemala and none of these countries have these regulations”.

“So this has many benefits for us in all the dimensions, one leading to the other.. ease of doing business, geo competitiveness, location diversity, workforce diversity, talent pool expansion and increased quality of delivery through reduced attrition, (taking it back to geo competitiveness) and there by increasing our business potential for the country, creating millions more direct and indirect jobs for the nation. Thus, it is a better stimulus to the economy than just a monetary stimulus.”

Extending the panel discussions further,

Chocko Valliappa, recalled how the Government brought in Texas Instrument to Bangalore and facilitated them with a Red Carpet but in due course with such regulations the Red Carpet became Red Tape.

He mentioned that, “We employ 6000 employees between US, India and Philippines and in US for example 95% of our work is done work from home and that’s how we always operated and but in India, we are operating in just 3 cities, Bangalore Chennai and Salem and I’m sure this (the new OSP guidelines) would give us a big footprint across India and set up offices across other places.”

“In the next 35-40 years India will be capable of handling 15% of the global economy. By 2050, India will be poised to become the manufacturing hub of the world replacing China by harnessing 3D design and printing capabilities.  I think India engineering talent would be sought after much more, so I think its a step in the right direction”, he further added.

Shri RS Sharma spoke further in response to a question by Rahul on whether the OSP regulation will fully go away in future. He recalled his experiences and how and why bureaucracy could not implement the ease of doing business issues easily.

Shri Sharma said, “TRAI had given two sets of recommendations, one to Ministry of Information and broadcasting another to the Department of Telecom, where we actually targeted ease of doing business.”

He also said that he has seen that the honourable Prime Minister is passionate towards ease of doing business and ease of living. He wants it, but I think we all need to come together, and we all need to sort of continuously work towards it.

“It’s a great thing which has been done actually and I was so happy, and I complimented each one of the people who are involved including the Department of Telecom”, mentioned Shri R.S Sharma at the end.

Discussion ended thanking all participants.

Disclaimer: The discussion and ideas expressed here should not be construed as legal advice. The discussion is conducted with Industry practitioners and experts for purpose of benefiting the Industry members in Software product, IT or ITeS Industry.