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Digital India: What Is eSigning & How It Works

Digitising India is the only sure-shot way to reach the benefit of growth to India’s masses and that then will create the multiplier to ensure the target 8 to 10% sustained GDP growth… [Digital India is] certainly the most appropriate call for transforming India into a vibrant and strong global economy.

– Pramod Saxena, Chairman & MD, Oxigen Services.

And we agree. Digital India has the potential to become one of the most meaningful reforms for Indian businesses in recent history.

As we’ve mentioned in the past, India can fulfill the promise of reaching a double-digit growth for businesses in the near future. But, as the Doing Business reports keep not-so-subtly pointing out, our infrastructure moves like a burdened elephant, rather than a ferocious tiger.

If we want to compete with the swift eagle (U.S) & the nimble dragon (China),we need to adopt tech-savvy practices which help us speed up business in every way – like digital signature certificates to attest the soft copies of documents & invoices. Yet, for many business owners, such practices are either too time-consuming to implement, or have little accessible information about their benefits for them to be understood well.

This is where Digital India can help. Last time, we had a chat about the DigiLocker service, and its possible benefits to Indian SMBs.

This next service which we address today birthed from a realization that digitally signing documents is an important basic amenity in the 21st century. But, it can’t be scaled if the plan calls for a billion people to be provided their own USB pen drive – which is what was required with the Digital Security Certificate system.

This week, let’s talk about eSigning.

This article will answer the following questions:

  • How does eSigning work?
  • How does it differ from regular Digital Security Certificates (DSCs)?

We will continue our conversation on how this impacts businesses in India in the next article of this week.

What Is eSigning?

Before we get into the ‘how’, we need to clear the ‘what’. And no – eSigning is not the same as getting a digital signature from a government-approved authority.

An eSign is an electronic signature which requires no prior paperwork, as long as you’re a registered Aadhar user. It can be instantly applied for, and approved for, a single-use validity of half an hour.

This differs from an issued long-term Digital Signature Certificate,which has a validity of one to three years, and is usually carried around in a dedicated USB device.

If you’re a user of eSign, this is how the process will seem to you:

  • You sit at a regular computer terminal, or a specific one installed by the service provider if you want to provide biometric data.
  • You verify your biometrics through the hardware installed by the provider, or through a One-Time Password (OTP).
  • You instantly receive a single-use eSignature to affix to whichever document you wish, as long as you use it within the next half an hour.
  • That’s it. You’re done. No, we’re not kidding.

Unlike the usual use of the term ‘eSigning’, however, the eSignature services launched under the Digital India campaign do not refer to a traced, handwritten signature on a digital screen or pad.

Instead, these eSignatures are highly regulated, legally binding, valid identity proxies which are issued only after the confirmation of biometric data such as fingerprints or iris scans, or through OTPs sent to the mobile number registered to the user’s Aadhar card.

Of course, there’s a lot more which goes on behind the scenes.

How eSigning Works

The biggest advantage of eSigning as a technological tool is that it’s absurdly simple to use for the end-consumer. However, since it’s a highly regulated service, the behind-the-scenes machinations are significantly more complex.

In the beginning, the architecture of the system is heavily derived from the Application Service Provider (ASP) which is choosing to provide this service to its users. One example of such a service is eMudhra’s emLocker service, which is currently allowing its users to eSign their documents. Another is the Indian government’s DigiLocker.

When a user accesses the eSignature service, the ASP creates the application interface – which acts like an application form. This API is used to access a partner eSign Service Provider (ESP), which is a government-approved entity that is registered as an eKYC authentication user under the UIDAI.

When this connection is established, the user provides an authentication of their identity based on the information saved under their Aadhar profile – either through fingerprint or iris scans, or through an OTP verification code sent to the mobile registered to their Aadhar. As soon as this information matches the saved KYC information in the Indian government’s database, a Certifying Authority – another government-regulated and approved entity –issues a temporary Digital Signature Certificate (DSC). In cases of entities like eMudhra, the Certifying Authority may also be an ESP.

A key pair is generated for that DSC, and an audit trail containing the authentication response and timestamp are created. The ASP finally receives the eSignature from the ESP, which can then be attached to the document. Once received, the user can now fix the signature to the document, and the key is then automatically destroyed after a one-time use.

What Does This Mean For The Future? In Closing

What this means for the future, Ladies & Gentlemen, is rather simple. Imagine a future India where the small-time farmer can self-attest documents online to receive faster access to government services and programs, or where his buyers sign and return invoices online to speed up his receivables due.

Imagine a future where, instead of having to attest twenty copies in thirty different departments when setting up a business, small-time entrepreneurs can simply save their documents on DigiLocker and attest them using eSign services – thus saving them days’ worth of physically running around, eventually helping them set up faster.

Imagine a future where a mistyped document submitted for a business visa would no longer require another appointment and a day at the relevant authorities. Instead, you self-attest the correct document online and send them a link.

Or an India where eInvoicing becomes the norm, like so many developed and developing countries in the world. Psst, by the way, eInvoicing can help cut as many as five days from the invoicing process, and so get you paid much faster. But more on that later.

Getting back to the point, that India isn’t so far ahead in the future. In fact, with eSigning and Digital Locker integration within services such as emLocker and DigiLocker, that India is already at our doorstep.

But then, we are but one voice. How helpful do you believe eSigning to be in the larger picture? Let us know in the comments section below.

with Inputs from Aniket Saksena 

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Reactions from #iSPIRT to the Union Budget presentation

iSPIRT is happy to note the Union Finance Minister, Mr. Arun Jaitley’s thrust in the direction of boosting the digital infrastructure in the country with specific reference to the Aadhar.

Aadhar powered by India Stack will allow people to offer presence less, cashless paperless service delivery to millions. Also digital literacy will also provide a big impetus in the rural areas.

The second initiative of iSPIRT which has been positively impacted by the Union budget is the ease of doing business in India and therefore the incentive for companies to Stay-In-India through the capital gains incentives where there will be no capital gains tax applicable if the funds so received are invested in a notified fund of funds by individuals in specific start-ups. The other major step is the decision to tax the Royalty Income from Patents developed and filed in India at only 10%, this we believe will certainly encourage companies to file more IPR in the country.

That said, we are disappointed with no attention being given to easing taxation norms of software companies where there is significant friction, the confusion on “goods” verses “service” tax on online downloads, TDS on sale of Software products and competition from foreign selling B2C products without any tax in India.

iSPIRT continues to work closely with the Government of India to enable the software product companies and start-ups to make the next leap with incentives from the Government. The Union Budget just presented is semi-sweet with specific sops being given to the start-up community in continuation of earlier policy announcements made by the Prime Minister Mr. Narendra Modi. There is a lot more that could be done to incentivize innovation and specifically ease the TDS conundrum which start-up and product companies find themselves adversely caught in.

Here are some specific comments from the iSPIRT team:

According to Mohandas Pai, Advisor, iSPIRT, “The Government continues to incentivize the start-up ecosystem as we have seen in the recent budget pronouncement. I am glad that the Government clearly recognizes that start-ups can be powerful problem solvers for the myriad issues facing the country and in turn generate employment as well. The Government’s decision to allow for 100% deduction of profits for 3 out of 5 years between April 2016 and March 2019 is certainly a welcome step that will boost start-ups.”

“While there are no major sops announced for the software product industry, the Government must understand that incentives to this segment of the industry will result in an exponential leap in exports and place India in an unshakable position on the world software product stage. That said, the decision to tax the Royalty Income from Patents developed and filed in India at only 10%  is a good move by the Government and will certainly encourage companies to develop and file more IPR in the country ,“ says Vishnu Dusad, Co-Founder & Governing Council member of iSPIRT & MD, Nucleus Software Exports Ltd.

Sharad Sharma Co-Founder & Governing Council member of iSPIRT says, “Start-ups in the country will certainly benefit from the budget announcement of amending the Companies Act to announce easier and swifter registration of companies. Another positive announcement from the budget speech by Mr. Arun Jaitley has been the focus on Aadhar for subsidy delivery. The Aadhar powered India stack from authentication to exection, coupled with the open API policy in India, can certainly transform the way in which digitally focused companies can reach the masses quicker and more effectively.”

Says Jay Pullur, Governing Council member of iSPIRT & CEO & Founder of Pramati Technologies.“The Government through the Union Budget has done well to do away with capital gains taxation if the funds so received are invested in a notified fund of funds or in specific start-ups. Of course, a lot more can be done to ease working norms for the software industry by looking into issues like dividends from overseas subsidiaries and a clearer and unambiguous definition of digital goods and digital services from a taxation point of view.”

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Tax holiday for startups should be provided in first few profitable yrs instead of first 3 yrs

Progressive steps taken by the Union Government for the Startup Community in its Start-up India initiative are encouraging. We hope the Union budget will reflect a similar sentiment and introduce policies around tax relaxations and process simplifications.

The structure of taxation and corporate laws in India is not very conducive for startups and early stage companies. A lot of these issues were addressed by the Union Government in their Start-Up India policy.

The industry is hoping for a fair budget and has a lot of expectations from the government to help ease setting up businesses. There are a lot things that can be improved to make the environment more friendly for startups and here is what we feel can be done to boost the ecosystem:

Income Tax: Mr. Modi recently announced that startups will not be charged Income Tax in the first 3 years.

Though that’s a step forward in the right direction, it’s common knowledge that very few startups are profitable in the first 3 years, and if that is the case they will any ways be not paying tax.

Instead of capping it on based on the number of years, tax relaxation should be provided in the first few years of profitability.

Additionally, while a company is making losses, they still have to pay tax (through TDS) and the tax gets refunded after 5-6 months at the end of the financial year. For a startup any proportion of liquidity is critical. Government should propose a solution such that loss making startups don’t have to part with critical liquidity.

Capital Gains Tax: Creating personal wealth is one of the core motivations for entrepreneurs to build startups. This ambition of personal growth often leads to creation of large enterprises that benefit thousands of people and is an enabler for the overall growth of the country.

Lesser capital gains tax in countries such as US and Singapore makes it more lucrative for entrepreneurs. Mr. Modi has announced relaxation in capital gains if they are invested in government schemes, however the relaxation should be across the board.

Simplified Policies: There are lots of policies, especially in the Companies Act where the processes are too complex for early stage companies, which often do not even have an accountant on board.

For instance, ‘Rights Issue’ has been made the mandatory process for allotment of shares. For startups, which often go through multiple rounds of funding these procedures are not only expensive but also time consuming and confusing. Simplifying such processes will go a long way in enabling founders to focus on core business areas.

Guest Post by Sachin Gupta, Co-founder and CEO of HackerEarth

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iSPIRT’s Stay-in-India Checklist gains further traction: RBI and MCA follow the Startup India Action Plan

Several notable announcements have been made by RBI and MCA pursuant to iSPIRT’s Stay-in-India Checklist (discussed in my earlier post here). In its bi-monthly monetary policy statement released earlier today, RBI has stated that it will take steps to contribute to an ecosystem that is conducive for growth of startups. It is noteworthy that each of the points in the policy framework released by RBI has attempted to address specific issues set out in iSPIRT’s Stay-in-India Checklist. As a member of iSPIRT’s Stay-and-List-in-India Policy Expert Team, it is a proud moment for me to see the result of months of interaction with various authorities on the Stay-in-India Checklist.

IMG_2447The policy changes announced by RBI are as follows:

  • Startups in all sectors will be permitted to receive investments from foreign venture capital investors (FVCI)
  • Transfer of shares from FVCIs to other residents or non-residents will be allowed
  • Permitting receipt of the consideration amount on a deferred basis as also enabling escrow or indemnity arrangements up to a period of 18 months, in case of transfer of ownership of a start-up
  • Enabling online submission of A2 forms for outward remittances on the basis of the form alone or with document(s) upload/submission, depending on the nature of remittance
  • Simplifying the process for dealing with delayed reporting of FDI related transaction by building a penalty structure into the regulations itself
  • Issue of shares without cash payment through sweat equity or against any legitimate payment owed by the company, remittance of which does not require any permission under FEMA
  • Collection of payments by start-ups on behalf of their subsidiaries abroad

In addition to the above, the following Stay-in-India Checklist points have been deferred for consideration with the Central Government.

  • Permitting start-ups to access rupee loans under ECB framework with relaxations in respect of eligible lenders, etc.
  • Issuance of innovative FDI instruments like convertible notes
  • Streamlining of overseas investment operations for start-ups
  • While the above announcements by RBI are encouraging (and extremely fulfilling, given the role iSPIRT’s Stay-in-India Checklist has played), it is important that these relaxations are not limited to the category of startups that are eligible to benefits under the Startup India Action Plan.

In addition to RBI, several key MCA points from iSPIRT’s Stay-in-India Checklist have been discussed in the report of the Companies Law Committee which was submitted to the Government yesterday. These issues are as follows:

  • Reducing private placement process for issuance of securities
  • Excluding convertible notes (convertible into equity or repayable within 5 years from the date of issue, if issued to a person with a minimum investment size of INR 25 lakhs brought in a single tranche) raised by startups from the definition of deposits
  • Allowing startups (which are incorporated as private companies) to raise deposits from members for the first 5 years without any upper limit
  • Simplifying the procedure to convert an LLP into a company
  • Deleting insider trading provisions
  • Allowing startups to issue ESOPs to promoters working as employees or directors
  • Excluding certain private companies under the purview of the definition of ‘listed company’
  • Simplifying the incorporation process

Again, while it is heartening to see this extent of action by the authorities on iSPIRT’s Stay-in-India Checklist, it must be ensured that not everything is linked to the definition of startups announced in the Startup India Action Plan.

photozzLastly, while the RBI has positively stated that it will notify certain changes soon, all of MCA issues and a majority of RBI issues are still at a ‘discussion/recommendation stage’ (and have been merely acknowledged by the authorities as issues that need to be resolved). Hopefully, the authorities will not stop here, and will implement all these changes soon. Needless to add, iSPIRT will keep interacting with, and assisting, the authorities in achieving a quick closure to these items, as well as the remaining issues which have not yet been touched by the authorities.

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#StartupIndia Action Plan — Reactions from a “normal startup”

Last weekend witnessed a glitzy startup event. In many ways, this event was like every other startup event in India — founders of “unicorn” startups dispensing gyaan to the rest of us mortals interspersed by some disinterested folks featuring in hackneyed panel discussions on done-to-death topics in front of an uninterested audience who had suddenly rediscovered the hidden joys buried deep in their smart phones.

There was one difference though — the final keynote of the day was delivered by none other than the Prime Minister of the country where he drew up what was purported to be an action plan for Indian startups.

Predictably, this was followed by universal approbation and politically-correct reactions from our startup luminaries who declared this as a momentous day only marginally less important than the Second Coming.

Out of these, one quip stood out for me.

Vijay Shekhar Sharma, the founder of Paytm had this to say:

“The announcements by the government were more than what a normal start-up would have expected”

I am not quite sure what this “normal startup” that Vijay alluded to exactly is but if I were to hazard a guess, it probably means an average joe workhorse startup — one that is far from being a unicorn (like the one that Vijay himself runs) and has no rockstar founders, hedge-fund investors or nose-bleed valuations to boast of.

As it turns out, I run a company that qualifies precisely for being called a “normal startup”.

And for what it’s worth, these are my expectations around the aspects addressed in the announcements:

I don’t expect to be subject to a new “permit raj”

Apparently, to decide who can avail of some of the envisaged benefits, an Inter-Ministerial Board will be set up that will get to decide if a particular company is a startup or not.

As those of us who grew up in the “licence raj” pre-liberalization era will readily testify, requiring to be gated by a government-sanctioned body to avail of any benefits or privileges is the first step down a slippery road that leads to abuses and rent-seeking behaviours of all kinds.

I have no desire or inclination to run down the “permit raj” gauntlet again.

If at all, a set of gating criteria is unavoidable, they should have been simple and empirically demonstrable rather than having to depend on the whims of a board of any kind.

I don’t expect the government to become a VC or LP that chooses winners

The government has announced a corpus of Rs. 10,000 crore structured as a “fund of funds” that will be disbursed over a period of four years.

I am not sure if this is a fresh initiative or the same Rs.10,000 crore fund that was announced two years back — and of which, I have heard precious little since.

In any case, I have no idea why the government feels that it needs to support the Indian startup ecosystem with direct funding. It is not as if there is a dearth of capital for startups currently — billions of dollars of VC money was invested last year and most people in the know will tell you that there is 10X more money that is waiting on the sidelines to enter the country. All of these funds are run by professional investors who have a well-informed hypothesis on why they should invest in India and specifically in chosen Indian startups.

But it is, admittedly, high-risk capital — a high-stakes game of startup roulette operating under an extreme power law (a small percentage of “winners” will end up delivering more than 90% of the returns).

This is a game that the government has no business playing. Not just because it doesn’t have the skills or risk appetite of professional investors but also because it shouldn’t be in the business of choosing winners in any form — something that yet again can leads to all kinds of rent-seeking behaviours and cronyism.

I don’t expect tax waivers or hand-outs for my startup or my investors

Two of the announcements made are around taxation — firstly, startups who are vetted by the Inter-Ministerial Board are exempt from paying income tax for three years and secondly, any long-term capital gains will be exempt from tax if you invest it into the government’s “fund of funds”.

I am really curious what made the government to offer tax exemption —does it feel that Indian startups are incapable of competing on their own without these kind of sops?

As far as I know, no self-respecting startup entrepreneur would expect this type of hand-out. I, for one, would have no problems with paying the stipulated taxes as mandated by the law of the land in which my startup operates.

If this is an attempt to recreate the IT-services boom which ostensibly benefited from zero tax on export income, then it is an ill-considered and retrograde move.

Tax incentives artificially mask the inadequacies of the companies who require such hand-outs and this move gives out a signal that startups are not capable of competing in a free market without this kind of government support to boost their margins and returns.

Also, as and when these incentives play out their life cycle, it leads to drastic pushbacks and over-compensatory normalizations that defeat the basic purpose of the original incentive.

Finally, tax incentives inevitably lead to distortions and abuse — while “good” startups require no such hand-out from the government, “bad” startups — those set up to explicitly exploit these types of schemes for nefarious purposes such as money-laundering — will prosper. A classic case of adverse selection.

As far as exemption on capital gains go, this is again an artificial inducement that is more likely to throw up bad results than good — if people invest in startups simply because they can save on their capital gain tax, it is a very bad reason to invest! Angel investing is not for all and certainly not for the faint-hearted.

I don’t expect the government to make it easier for folks to start up

Under the proposed action plan, it would apparently be possible for folks to start up in a single day through a mobile app.

I am a loss to understand why this is useful or valuable and see this primarily as showboating (why a mobile app for instance?).

Is this an attempt to improve our ranking in the “ease of doing business” index?

Singapore is currently ranked one of the top-ranked countries in this index and it takes two-three weeks for you to completely set up your startup there. This is not significantly different from the time taken in India — what’s more, most of this can easily be outsourced and doesn’t really take up much of the entrepreneur’s time.

In any case, this is an activity that a startup has to go through just once in it’s lifetime — contrast this with the recurring reporting overheads that a startup has to face thereafter with assorted tax and labor departments which are far more taxing and cumbersome.

Finally, on a somewhat philosophical note, I am not quite sure why starting up should be a trivially easy operation — having some “pain” in this aspect is actually a good thing as it could filter out some of the folks who are not really cut out to be entrepreneurs in the first place! The current system is therefore a positive aspect as it is self-selecting.

I do agree that it should be easier to shut down companies but from what I understand, a bill addressing this is already pending before Parliament and the action plan doesn’t offer anything new in this regard. Also, this step is more useful to investors than to entrepreneurs themselves, so it is somewhat orthogonal to a plan that is targeted towards startups.

The others…

Now I have been running startups for a while and so, some of the points mentioned don’t apply to me as they target newbies.

I am not convinced that the government operating startup hubs and supporting incubation centers is a step in the right direction — the bottleneck in enablers like this has never been around infrastructure but rather on having the right mentors and guides. Nothing in the announcement contours suggested that this key gap is the one that the government is cognizant of attempting to fill.

For other announcements — such as self-certified compliance and subsidized patent filings, the devil is in the details and it would be premature to judge these one way or the other today.

What I actually expect…

So, as a “normal startup”, what do I actually expect?

This is what I would expect:

Boost sentiment by having a predictable policy regime

A lot of startups in my peer group have re-domiciled to Singapore. Nothing that has been announced in this plan will make any of these companies to reconsider the move.

These startups have moved to Singapore primarily because global investors see India as an unpredictable place to do business. Unfortunately, these sentiments are well-founded .

Take the illustrative example of a global major that acqui-hired a small Indian startup for what was essentially a rounding error in their balance-sheet — the actual acquisition was dragged on for over a year and the amount stuck in a holding account as the acquirer was made to run from pillar to post to explain why the value of the IP acquired was fair. This global major has now sworn off acquiring any more Indian startups!

Or take the example of companies like Flipkart that have had to migrate to Singapore because the policies around FDI in e-commerce are murky and/or inimical.

Unless the government address these structural issues around business and taxation policies at a fundamental level not restricted merely to startups, the state of things is unlikely to change.

Be a proactive customer to Indian startups

Rather than being a defensive regulator, the government should consider morphing into a proactive enabler that supports Indian startups — for instance, by being a customer for the products and services offered by us. The action plan does mention a few steps in this direction but the patronage mentioned extend only to manufacturing firms who are already in line to leverage the 20% procurement mandate for PSUs and others.

Double down on building out internet connectivity infrastructure

While a large portion of the Indian populace have come online over the last few years, there are still large swathes who are not connected. If large companies like Flipkart could be created on the back of 100 million Indians online, imagine how many behemoths could emerge from 500 million Indians being online!

Epilogue

As someone who runs a normal startup in India, I already am all too aware of the myriad risks and challenges of trying to build a world-class company out of here.

But none of this fazes me.

As an Indian, this is something that I signed up for with my eyes fully open.

I see the government’s announcement as a signal that it recognizes Indian startups as an engine for innovation and non-linear growth and am grateful for this “intent”.

That said, I would love to see the policies and execution around this intent to be done on the back of substantive discussions with Indian startups and representative bodies like iSpirt.

Only then can this intent translate into something meaningful beyond a superficial fest of circle-jerking and premature declarations of victory.

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Startup Action Plan: Glass Half Full

Innovation and entrepreneurship are cornerstones of sustained economic growth. The Government has done well to recognise this by launching the Startup India Action Plan. The event was an unprecedented and resounding success. The energy in entrepreneurs, leaders of unicorns, seasoned investors, Government officials, etc was intense and, for most part, contagious. No doubt the Startup India Action Plan has provided various important exemptions and incentives to startups. However, the key question is this – Whether the Action Plan adequately addresses the irritants that make the Indian startup ecosystem unattractive? In our view, the answer is no.

iSPIRT has been closely associated with the Government in this endeavour, and had put together a list of thirty four key irritants that need to be resolved to arrest the exodus of Indian startups. The list is called the Stay-in-India Checklist. Of the thirty four issues, ten each came under the Revenue Department and the RBI, nine came under the MCA, and the remaining came under multiple departments such as the DEA, DIPP, RBI, MCA, and SEBI. Based on our analysis of the Action Plan and other announcements made, the present status looks like the following:

Startup Action plan

As noted above, only one RBI issue has been resolved so far (that too by way of a clarification during our discussion prior to the Startup India event). There was no announcement on any other RBI issues as part of the Action Plan. For creating a vibrant startup ecosystem, it is imperative that the investments from foreign sources are made easier. While the RBI, MCA, and other authorities had assured us that action will be taken on most of these issues (see the orange category above) once the definition of ‘startup’ is released, so far, there is no clarity as to when such action will be taken.

We will internally continue to interact on the outstanding (orange and red) items with the RBI, MCA, Revenue, and other departments. We hope that these issues will also be resolved by the relevant authorities soon.

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#StartupIndia Little Action Plan

There was palpable excitement all around on June 16th as the much awaited Startup India policy was to be unveiled. Scores of intrepid, passionate, dedicated, knowledgeable volunteers from multiple groups had worked tirelessly for very many months advocating the need for the administration to recognise startups as legitimate 21st century vehicles for creating jobs and wealth in society. For this to happen, multiple sessions were held to educate, illustrate and showcase what startups had done for other economies and are beginning to do in India.


One of the great accomplishments has been to get the word “startup” accepted within the administration. Acknowledging that an educated highly talented set of individuals could come together to start an entity based on innovation and driven by technology and intellectual property was a major achievement. Because till then, the visual metaphor was of a safari suited micro and small business owner – much maligned in various soaps and movies – obsequiously dealing with multiple government agencies and not averse to bending the law and greasing the machinery!

It is said that the beginning of wisdom starts with definitions. Section A of the Action Plan details the definition of a startup which is quite acceptable. However, what is important is to see how language gets transferred into official government notifications and the law.

However, for a startup to get government tax benefits it has to receive a certification from an Inter-Ministerial Board that will be set up for such purposes! When such a Board will be set up, the composition of the Board, the frequency of their meetings, the discretion powers vested with this Board are all yet to be made known. Why not have An online self-certification mechanism for this with severe penalties for those misusing or misrepresenting their case?

A mobile app will be made available from April 1st of this year for the purposes of registering, filing, tracking, applying for schemes, by startups. Interestingly, though the hope is that it will be within a day, the Action Plan document doesn’t specify how long it will take for a startup company to be registered! And what the pre-requisites are eg does the Inter-Ministerial Board or the DIPP or any other approved 3rd party have to certify the startup?

Self-certification of compliance, via the mobile app, with 9 Labour and 3 Environment laws is a welcome move with a 3 year moratorium on labour inspection. But why not include simple self-certification compliance for all other laws too, eg secretarial and governance matters? And why not for say, 5 years? Especially when the definition of a startup talks of an entity that is less than 5years old?

The Action Plan aims to allow a startup to wind-down its operations in 90days after it appoints a liquidator/insolvency professional and pays off all creditors and sells the assets. This is a very welcome move as anyone who has attempted to shut a company down in India can attest that it is an almost impossible task. The Insolvency and Bankruptcy Bill 2015 (IBB) that’s pending in Parliament will detail the provisions of the fast-track and voluntary closure of a business. Till the IBB is passed and the details known, celebrations will have to wait. The PM even exhorted the audience to use social media to rally support for IBB!

Since April 2015, central and state governments and PSUs have to mandatorily procure 20% from micro, small and medium enterprises (MSMEs). This has been extended now to include startups. But only startups only in the manufacturing sector are eligible! Why not all startups? And in place of “prior experience/criterion” startups have to demonstrate “requisite capability to execute the project as per the requirements”. Whatever that means! With fears of the CAG audit, one can see how this will be implemented in practice.

Startups don’t have to pay Income Tax for 3 years. Well, am not sure if there are any startups that generate taxable income in the first 3years! Why not make startups exempt from all taxes for 5 years?

There is an exemption for investors with capital gains to invest in the government “Fund of Funds” and for investments in manufacturing MSMEs. This is just an extension of an existing provision. But is this exemption applicable to entrepreneurs (not just investors) who say, sell their house and invest in a startup? If not, why not?

Angel investors cannot claim the FMV certification exemption that now, thanks to this policy, includes incubators in addition to venture capital funds.

A clear liberal stock option policy, taxation policy, onerous compliance requirements for startups raising capital – either domestic or overseas – are other areas that will have to wait another day or the budget.

A Rs 10,000crore Fund of Funds, setting up a Rs 500cr annual venture debt scheme, encouraging the setting up of research parks, incubators and a country wide programme to spread the awareness of startups in schools and colleges showcase what the government does best, namely creating large national schemes with a grandiose hopeful vision. Clarity on how these will be implemented and more importantly managed and monitored and what kind of outcomes are planned will however have to await another day!

This Startup Action Policy flatters only to deceive. The reluctance of the state to disengage from the culture of command and control shines through. India jumped 12 places to 130 from 142 in the Ease of Doing Business Index 2015 thanks in large part to the improved power situation and not due to any radical change in procedures and laws!

The good news is that entrepreneurs are unstoppable and have, in spite of the best efforts of India’s crushing bureaucracy, demonstrated their abilities and established India as a global startup hotspot. The steps outlined in the Action Plan will only nudge them along faster. And that can’t be bad. India remains the country with enormous potential!

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of iSPIRT.)

This article was first published on YourStory

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Sign Startup Bridge Petition and promote Stay-in-India Checklist

Today’s Economic Times carries an article about “The Dark Secret of India’s Start-up Boom”. This implores the Modi Government to make bold moves regarding the onerous regulations that startups face.

iSPIRT is also part of the new Startup Bridge India campaign, which urges the Indian government to adopt best practices from around the globe to help startups start, flourish and exit.  We’ve been working alongside a consortium of lawyers, think tanks, entrepreneurs and venture capital firms from TiE Silicon Valley to put together detailed legal language and fixes in the current policy. Startup Bridge India is hosting an online petition that demands simpler processes for investing in India’s future, a petition intended to show widespread public support for these important initiatives. Every signature matters and timing is critical to help bring about much needed policy change. You can sign the petition on startupbridgeindia.com.

iSPIRT has been involved in nitty-gritty work with the Government in the past 75 days around its Stay-in-India Checklist. Here is what’s been happening…

What is Stay-in-India Checklist?

More and more technology startups are being forced to redomicile to Singapore or US due to a host of policy irritants that disparage the Indian startup ecosystem. After careful consideration, iSPIRT’s Stay-and-List-in-India Policy Team identified 34 key issues that need to be resolved immediately to stop this exodus. The list includes issues covering incorporation, fund raising, operations, taxation, exits, closure, payments, and intellectual property.

How was it created?

We looked at submissions from TiE, NASSCOM, IVCA and FICCI and put them into a single spreadsheet. After de-duplication we had about 120 items. These were then classified into hygiene and incentives categories. Based on consultations with startups, the hygiene set was further refined to create the Stay-in-India Checklist.

What are some of the key items on Stay-in-India Checklist?

The Checklist includes requests for favourable IP tax regime, harmony in taxation of listed and unlisted securities, relaxed external commercial borrowing norms, faster incorporation and liquidation processes, and permitting convertible notes, indemnity escrows, and deferred consideration in foreign investment transactions.

Who manages the Checklist?

iSPIRT Stay-and-List-in-India Policy Expert team managed the Checklist. The team has 7 members – two startup CFOs, two VCs and three tax/legal experts. Mohandas Pai as the mentor to the team.

What’s been the progress on the Checklist?

The Checklist received mixed responses from the regulators. While certain items (like permitting share swap as a valid method of share transfer in FDI transactions) were allowed during the discussion process itself (hence removed from the Checklist), the regulators were hesitant in permitting other items (such as tax exemptions). Largely, the regulators were receptive to the suggestions. We had detailed discussions on each item of the Checklist with the relevant regulators. Wherever the regulators were unable to implement our suggestions, they conveyed to us the concerns that restrained them. We hope these concerns are alleviated in due course, and they are able to implement all suggestions.

What are some of the key meetings that have taken place?

We have a good partnership with Mr. Amitabh Kant, Secretary, DIPP on this. His office has setup about two dozen meetings with the relevant regulators. In these meeting, iSPIRT plays the role of being the subject matter expert on items in the Stay-in-India Checklist.

The whole process kicked into high gear after an intense and productive meeting with Mr. Amitabh Kant on Oct 23rd and with Dr. Raghuram Rajan on Oct 24th. This was followed by a meeting with Principal Secretary, Mr. Nripendra Mishra at PMO on Nov 9th. Subsequently, meetings with Revenue Secretary and MCA Secretary took place. These led to numerous follow-up meetings and calls with relevant officers. Nakul Saxena has coordinated all these meetings.

What are some of the learning’s from this effort?

There is very little awareness about the world of technology startups. So education on the realities faced by the startups is critical. Sometimes one runs into situations where the issue can be closed without much effort. At other times, the dichotomy between regulatory agencies is most frustrating. Also, because of the way liberalisation of regulatory framework has been widely misused in India, the authorities exercise great caution before liberalising any regulation. The approach, therefore, is to not permit any ‘risky’ regulation, rather than punishing those who misuse it. Overall, we find the receptivity of the government agencies is good. Our positioning of being a think tank, focussed on the national agenda, rather than being a tradebody is helping a lot as well.

Guest post by Sanjay Khan, Khaitan & Co

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iSPIRT Meeting at PMO – Stay in India Checklist

An important policy agenda for iSPIRT is to reverse the exodus of technology startups. About 75% of the funded technology startups are redomiciling outside India due to regulatory irritants.

iSPIRT has a Policy Expert Team – called Stay-and-List-in-India – working only on this area since December 2014. This is the policy team that worked closely with SEBI on the “startup bourse” that was notified earlier this year. Mr. Mohandas Pai has been an important guide and mentor to this team.

The Stay-and-List-in-India Policy Expert Team has developed a Stay-in-India checklist. This has 36 items that need to be addressed by Ministry of Finance, Ministry of Corporate Affairs, RBI and DIPP.

After PM Modi’s Silicon Valley visit, Mr. Amitabh Kant, Secretary DIPP, has been pushing hard to make progress on the Stay-in-India checklist. Towards this end, he had organized a cross-ministerial meeting with iSPIRT that was chaired by Mr. Nripendra Misra, Principal Secretary – PMO. The meeting was attended by Secretaries including Mr Madhav Lal, Ministry of Micro, Small and Medium Enterprises; Mr Ashok Lavasa, Ministry of Environment, Forest and Climate Change; Dr. Hasmukh Adhia, Department of Revenue, Mr Shaktikanta Das Department of Economic Affairs, both from Ministry of Finance; Mr. Tapan Ray, Ministry of Corporate Affairs; Mr Ashutosh Sharma, Department of Science & Technology and Mr Krishnaswamy Vijayraghavan, Department of Biotechnology both from Ministry of Science & Technology.

Others present included, Mr Shatrughna Singh, Additional Secretary, DIPP; Ms Snehlata Shrivastava, Additional Secretary, Department of Financial Services, Dr. Renu Swarup, Sr. Advisor, Department of Biotechnology, Mr U S Paliwal, Executive Director, Reserve Bank of India, Mr Hemang Jani, OSD to PM and Operations Officer from the World Bank.

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There were three parts in the meeting. The first part was a showcase of 6 technology startups. This was curated, as usual, by Shekhar Kirani, Fellow, iSPIRT (Accel Partners) and Avinash Raghava. The purpose of this session was to highlight that tech startups are key to transforming India at large. They are setup by entrepreneurs from middle class backgrounds who parley their skills into sweat equity to build valuable businesses. The showcased companies included CRMNext, Foradian Technologies, Eko India Financial Services, Snapdeal, Uniken, ForusHealth and Team Indus. They all made carefully prepared 3 min presentations and answered questions.

The Stay-in-India Checklist was discussed in the second part of the meeting. Sanjay Khan (Khaitan Associates) of the Policy Expert Team made the presentation. This was a technical discussion on specific issues. At times, it was very detailed.

In particular, Mr. Shaktikanta Das, Secretary, Department of Economic Affairs, Ministry of Finance and Mr. Amitabh Kant, Secretary, Department of Industrial Policy and Promotion (DIPP) were very proactive in taking suggestions. Mr. Kant did say that they are trying to create a single window to deal with startups.

In the third part of the meeting, there was short discussion about teaching entrepreneurship as a minor in engineering education. This was led by Sanjay Vijaykumar of Startup Village. His talk was very passionate and impactful.

It was cleart that all the officials were determined to make quick progress and were truly concerned by the exodus of tech startups from India. We all ended the meeting with a group photo. One of the senior officials remarked that this moment is important to capture so that we can look back and remember where it all started!

Guest Post by Abhishek Sinha, CEO, Eko India Financial Services 

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SEBI & iSPIRT Discuss Modernized Online Platform with Tech Startups and Securities Market Intermediaries.

On 15th October, Mr. U.K. Sinha, honorable chairman of SEBI, had a more than 4 hour meeting with iSPIRT. The goal was to lay the ground-work for a new approach to Paperless and Presence-less Distribution Model enabling a 10X growth in the number of people buying Mutual Funds.

The iSPIRT team was chaired by Nandan Nilekani and included key members of its Open API Expert Team – Sanjay Jain, Pramod Varma and Sharad Sharma. Several Tech Startups like Scripbox, FundsIndia, Perfios, Eko, PolicyBazaar, BankBazaar, Flipkart and Eko participated in this interactive session. Many Securities Market Intermediaries comprising of representatives from HDFC Mutual Fund, Birla Sunlife MF, Quantum MF, CAMS and KARVY also attended the meeting. Nakul Saxena, Fellow Policy Initatives, coordinated the meeting on the iSPIRT side. From SEBI’s side Mr. Amarjeet Singh, Mr. Sujit Prasad, Mr. Ravi Kumar, Mr. Rajesh Gujjar and Mr. Vimal Bhatter also participated.

The discussion focused on three tracks:
1. Regulatory track for simplifying the various processes for Investor participation. There was intense discussion around simplifying or re-engineering the Onboarding process of Retail Investors. It noted several ideas to remove IPVs/wet signatures, speeding up the KYC processes via KRAs’ (KYC Registration Agencies).
2. Technology track focused on providing a paperless and presence-less Online Technology Infrastructure. This was about leveraging the “India Stack” for lowering the onboarding costs almost 100X.
3. Market track focused on enabling streamlining the Distribution Model for increasing the Retail Mutual Fund Investor base. Several ideas around how to increase Investor trust, lower cost of customer acquisition and provide for an Online Only Distribution model were discussed.

Conclusion
It was a very productive working session. There were many learnings for all participating including Tech Startups and Securities Intermediaries. Pilots will now be undertaken starting mid-November.

Its now becoming even more apparent that INDIA will leap-frog the WEST in its Digital Platforms particularly in the Banking and Finance sector. Brace yourself, as we might be entering an ERA of hyper-growth fuelled by JAM (Jandhan, Aaadhar and Mobile) that is powered by the “India Stack”. iSPIRT will talk more about this impending change in the coming months.

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SBI and iSPIRT discuss future of banking in India

iSPIRT and SBI had a 4-hour meeting on the future of banking. 30+ seniormost officers of SBI – including all the MDs, DMDs, CGMs, and GMs – participated. Two SBI Board members were also present. Nandan Nilekani chaired the session from iSPIRT side.
DSC_2148The first session was about understanding the technology trends that are shaping banking. There was special focus on understanding implications of eKYC, Aadhaar, new payment infrastructure and GST Network. There was also a good discussion how point-solutions by startups are changing banking.
The second session showcased 7 Fintech software product companies (Novopay, Happay,Vote4Cash, CapitalFloat, CustomerXPS, ProbeEquity, Enstage) and 2 non-FinTech product companies(InMobi, TeamIndus). The third session session was about SBI strategy. This was a very productive discussion. We can’t share the details as it was confidential.
This meeting brought together two threads within iSPIRT. One thread was related to its Policy work related to Open APIs (that is shaping the technology infrastructure of banking and finance in India) and the push for Cashless India. The other thread was InTech50, which is a market catalyst that helps big companies leverage software products startups to drive innovation throughout their business.
DSC_2150iSPIRT is fostering many such dialogs with not just banking giants like SBI, but with Regulatory institutions like SEBI, RBI and others, to fashion a new India.
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SEBI Startup Listing Exchange – Nasdaq of the East

Efforts of iSPIRT’s List-in-India Policy Expert Team have reaped the desired results. The securities market regulator, SEBI, has announced relaxed norms for a separate platform to allow “new-age companies” having an innovative business model and belonging to the knowledge-based technology sector to list in the country.

The existing legal framework has considerable challenges for a successful listing, including the mandatory track record of distribution of profits for 3 years. Consequently, Indian technology startups (with their usually disruptive business models) have been increasingly looking to list overseas in view of the less stringent regulatory hurdles. It is hoped that the relaxed regulatory regime will provide software product companies with an opportunity to raise capital through listing onthe proposed platform, and give them a viable alternative to offshore listings. The new platform is also expected to provide an exit opportunity to the investors who have invested in such startups, thereby generating further cycle of investment in the economy.

The iSPIRT List-in-India Policy Expert Team is very happy with this outcome. Things have moved really quickly after we kicked off the effort on Dec 19th in Blr. Mohandas Pai has been an excellent mentor and driver of this effort. We are now working hard to address issues that drive exodus at the Seed and Series A stages of software product startups.
More details of the SEBI Policy can be taken from here. Some of the coverage we have got from LiveMint, Business Standard and Economic Times are here.

 Guest Post by Sanjay Khan, Khaitan & Co

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Chief Economic Advisor is Infected Positively by the Irrational Exuberance of Indian Product Startups.

Mr. Arvind Subramanian, Chief Economic Advisor to the Government of INDIA, has been named as one of the world’s top 100 global thinkers by Foreign Policy magazine. After stepping into the shoes of Dr. Raghuram Rajan as Chief Economic Advisor, he is also a widely cited expert on the changing Balance of Global Economic power, as it pertains to INDIA & China. He is also the author of “INDIA’s TURN: Understanding the Economic Transformation“. Mr. Arvind specially travelled to Bangalore to interact with software product industry and discuss policy with the the policy team of iSPIRT Think tank.


In the 4 hour meeting, the energy that emerging companies brought out with each presentation was amplified as the discussion progressed. In the end, I must admit that there was a euphoric feeling that this movement of creating public goods with the Social Commons model is really on-to-something BIG!

Not all elements of the session can be reproduced here, but this article is an effort to provide you the important highlights.

2015-05-28 17.36.55What was so Infectious? Its the Mirror Neurons, Stupid! 

In the first session, as it has become customary, about 8 carefully curated product startups which started in INDIA, with audacious aspirations, and which have already made significant GLOBAL impact while still retaining their Indian-ness, presented their stories. Almost every story was about Product Entrepreneur’s who dared to dream BIG, not just from themselves but for leap-frogging INDIA and the world. The Goal set out for the session was to show-case the behind-the-scenes transformation that is taking place in the software Product Industry landscape.

The Irrational choices of many Entrepreneurs were show-cased in their business avatars, as NowFloats, Uniken, Tally, Forus Health, Team Indus, FreeCharge, SnapBizz & Ezetap. While the strategy choices seemed Irrational, the success these business are having today, and the impact they can have tomorrow to reclaim India’s glory was self-evident. The outcome of the session was remarkably different from the goal the session set-out to achieve. What became apparent as the session progressed was the infectious effect it was having on each participant in the room. It was as if the Mirror Neurons from these passionate Entrepreneurs was affecting not just the minds, but it was affecting our Inner Spirit. The Infectious nature of the session’s outcome in many ways mirrored the outcome of these businesses.

2015-05-28 17.37.06What is the Cure? More Infection. Make India Go Cashless.

In a thoughtful next session the discussion moved toward more earthy and material realization of how Technology & Infectious energy of the startups can be leveraged to leapfrog INDIA. This discussion was about how to make India Go Cashless in 4 years. The benefits of going cashless are many. It can expand micro-credit to small businesses in a big way, for even street-hawkers (Thelewalas) to be able to digitally get credit and also seamlessly receive money from customers. Sanjay Jain (iSPIRT Open API Expert Team member, former Chief Product Officer of Aadhaar) and Abhishek (iSPIRT Colunteer, CEO Eko) presented a comprehensive approach and suggested a new Program, Jan Samridhi, for the Government. This builds on the Open API work that iSPIRT has already done (in eSign, UPI and GTSN) and proposed specific and inter-related policy and regulatory changes. The only real way of achieving this is to have more agencies in the Government, the Regulatory institutions and people to participate. So in effect, the cure really is to infect more people with the Spirit of Social Commons. The discussion clearly bridged some the intellectual distance between Delhi and Bangalore.

Advice from the Chief Economic Advisor

Mr Arvind, in his own-words was blown-away with the enthusiastic zeal and business performance of the Product Startup Ecosystem. He however was also clearly in his elements as he carefully constructed the broader picture by taking the various elements from the Individual presentations. Some of his suggestions and advice to the Startup community were as follows.

  • How soon can we marry the Private Entrepreneurial zeal & Public Goods created by such movements?
  • Can we use and leverage the existing products automating, say, Govt Fair Price shops?
  • While mildly chiding Product Entrepreneurs to dream even bigger by including Government, he asked if we can help realize other broader over-reaching goals like Government Technology Platforms for Expenditure tracking?

He even offered to visit Bangalore and participate 2-3 times a month in various such initiatives to enable routine conversations with Policy Makers and Entrepreneurs.

2015-05-28 18.27.33Conclusion

The entire program was highly Interactive, Infectious & Confidence building. It gave a sense that may-be within 4 years we can Make India go cashless. It also re-affirmed the new Paradigm of creating Public Goods with a Social Commons approach (Open source approach). It is important to co-create a digital INDIA, not just with the Entrepreneurial zeal, but by getting Government and Institutional bodies involved as well. These Infectious power-packed dialogs that iSPIRT is fostering will help us rewrite the script of our Nation, and will help us reclaim its lost Glory. We will become a Product Nation soon, it seems inevitable. Be a part of it now. Go ahead, spread the INFECTION, not just the word.

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Era of Open APIs

APIs are important public goods that must be done right. They must not be held captive to commercial interests. This is why iSPIRT is helping Government in this area. iSPIRT’s work is inspired by Open Source movement and IETF methods. It fits with our charter of creating public goods without public money.
GSTN teamOur Open API effort is based on some core principles:
– Like IETF, iSPIRT is not a member organization. Participation is “People, not companies”.
– “Design is a team sport”. Focus is on building a modern architecture for country-scale technology systems.
– iSPIRT API Teams have people who are “Competent experts that are completely free of conflicts”.
– Technical decisions emerge from intense discussion. They are informed by prototypes, not theory. Motto is: “Code walks, bullshit talks”.
Today Economic Times carries an article about this Open API effort.  The article conveys the progress that we are making. More is on its way.
Source: Economic Times

We will soon be launching a micro-site to build engagement with your community. Watch this space.

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Finance Secretary – interacts with Product Industry in Bangalore.

Mr. Rajiv Mehrishi promises deeper Institutional Reforms

Mr. Rajiv Mehrishi, Finance Secretary, Ministry of Finance for Government of INDIA, is a pro-reforms, vocal advocate of institutional transformation of the Financial System in INDIA. Additionally, he is also  the Secretary, Department of Economic affairs. Mr. Mehrishi and his team – Mr. Manoj Joshi (Jt. Secretary), Mr. Ajay Shah (Head, Macro/Finance Group, NIPFP), Ms. Ila Patnaik (Principal Economic Advisor) and Mr. CKG Nair (Advisor, Capital Markets) – specially traveled to Bangalore to understand the software product industry landscape and discuss ways to make India go cashless.

The 4 hour interaction was at ITC Windsor Manor. It was chaired by iSPIRT Mentor Mohandas Pai.  iSPIRT Governing Council members Bharat Goenka (Tally), Vishnu Dusad (Nucleus) and Sharad Sharma (BrandSigma) were also there along with Fellows Avinash Raghava, Nakul Saxena and Sudhir Singh. Shekhar Kirani who had planned the industry landscape showcase had to skip the meeting to be at his daughter’s music recital.

Showcasing behind the scenes transformation of India

The first session focused on bringing the software product industry landscape to life through a carefully curated showcase of 10 product startups. Each startup is a story of dreaming big about transforming India and the world. The goal of this session was to showcase India’s under appreciated prowess to shape industries and tackle deep rooted problems through its tech startups. The companies that participated in this carefully curated showcase were Ezetap, Instamojo, Capillary, PeelWorks, InMobi, Foradian, Team Indus, Forus Health, OlaCabs and Practo. The session went well and was an eye-opener to the policy makers. It helped them understand the breadth and depth of the emerging software product industry in India. One of them remarked that this was “one of the most awesome afternoons of his life”. They found the session to be “revealing and energizing”.  Everybody felt more optimistic about India’s future after this session.

Making India go Cashless

The next session was a thoughtful discussion on how to make India go cashless in 4 years. It was led by Bharat Goenka and Sanjay Jain (iSPIRT Open API Expert Team member, former Chief Product Officer of Aadhaar). They presented a comprehensive approach and suggested a new Program, Jan Samridhi, for the Government. This builds on the Open API work that iSPIRT has already done (in eSign, UPI and GTSN) and proposes specific and inter-related policy and regulatory changes. This benefits of going cashless are many. It’ll curb black money but will also expands micro-credit to small businesses in a big way.

Tax Friction for Product Startups

The final session was about tax friction for software product companies. Most of these are arise from poor definition of software products within the Finance Ministry. Mr. Mehrishi promised a quick resolution of these issues.

Conclusion

It was a very collaborative and interactive session. It showcased how India has emerged as the 2nd largest software product startup ecosystem in the world. It also brought attention to this new paradigm of creating Public Goods with a Social Commons model (open source model) and how this approach would be instrumental in India going cashless in a short period of time. Mr. Mehrishi and team suggested that deeper institutional mechanisms are required to bridge the intellectual distance between Delhi and Bangalore.

These powerful dialogs that iSPIRT is fostering with key policy makers (e.g. SEBI’s UK Sinha, RBIs Raghuram Rajan) are making a difference. They are helping us rewrite the script of the nation. And they are taking us closer to making India a Product Nation! So go ahead, spread the word.