Foreign Investment In Indian Startup And Its Advantages

FOREIGN INVESTMENT IN INDIAN STARTUP AND ITS ADVANTAGES

INTRODUCTION- foreign investment in Indian startup and its advantages, India’s economic market is considered to be one of the major forces. Being a developing country, it has certainly major impacts on global trading. More and more developed countries are trying to make a tie with the Indian based market so as to acquire a variety of customers having huge purchasing power. India being the fastest growing country, it enjoys friendly policies from the Government and a lot of other advantages for starting a business.

A startup can be termed as a venture of an entrepreneur which is new in the market sector and the main purpose of which is to meet all the customers need want and to overcome their problems by developing models like product, services, etc. accordingly. Whenever any company is started, the first stage of it is called startup. The entrepreneur who starts these companies, themselves invests in the initial stages. But nowadays the Government has come up with a scheme called Startup India Scheme to encourage more youths to become an entrepreneur and start a business of their own in India. The scheme provides for different benefits like exemption from taxes, FastTrack services and up to 80% rebate in processes like patent application, investment through alternative investment funds, etc.

FOREIGN VENTURE CAPITAL INVESTORS(FVCIs)

In order to ease the flow of foreign investment in Indian startups, the Government of India in Consolidated FDI Policy 2017 allowed the foreign venture capital investors to contribute up to 100% of the capital of startups, be it any sector under the automatic route. Equities or equity-linked instruments or other debt instruments issued by the startups, investments can be made in these and if the startups are Partnership for LLP, an investment can be made in capital or profit-sharing.

ISSUE OF CONVERTIBLE NOTES

All the investments can be done by foreign venture capital investors. In addition to this startups can also issue convertible notes to foreign persons subject to the following conditions:-

1) A foreign individual (other than a person residing in Pakistan or Bangladesh) can purchase convertible notes which is issued by the startup based in India for rupees 25 lakh or more.

2) A Startup under sector which requires a government approval the investment can be made by a foreign individual only after taking such approval from the Government.

3) The amount received in favour of convertible notes issued by a startup company to foreign individuals shall be debited to NRE account maintained by the person concerned in accordance with Foreign Exchange Management Regulations 2006, repayment outside India shall be credited to NRE account maintained by a person in accordance with Foreign Exchange Management Regulations 2016.

4) foreign individuals can acquire convertible notes on the basis of non-repatriation in accordance with Foreign Exchange Management Regulations 2017.

FORMS OF CONVERTIBLE NOTES (CN)

1) The startup company based in India, which is showing convertible notes to foreign individuals or entity shall report such transactions to the Authorised Dealer Bank within 30 days of such an issue in form CN.

2) The foreign individual or entity receiving such convertible notes from Indian startups shall report such transfers to inform CN to the Authorised Dealer Bank within 30 days.

3) The consolidated statement made by both the parties shall be submitted by Authorised Dealer Bank to the Reserve Bank.

• The format of such submission shall be such which is prescribed by the Reserve Bank.
• all the regulations reporting shall be made to the Authorised Dealer Bank unless otherwise stated.
• if any delay occurs in such reporting, the person responsible for filing the form shall be obligated to pay late submission fees as may be decided by the Reserve Bank in consultation with the Central Government. Foreign Investment In Indian Startup And Its Advantages

DEFINITION OF STARTUP

Startup means an entity or incorporation which is registered in India:-

• up to 7 years from incorporation or registration or in case of biotechnology sector upto 10 years.
• as a partnership firm or private limited company or limited liability partnership.
• since incorporation annual turnover of which is not exceeding Rs.25 crore in any of the financial year.
• which aims towards innovation, improvement of products, process or services and providing development for the society, creating employment and wealth.

The above definition is being given by the Department Of Industrial Policy And Promotion.

The following points says when a Startup will not be considered as a Startup anymore:-

• if the turnover of it exceeds Rs 25 crore for any previous year.
• when 7 years term is over from the date of incorporation or 10 years in case of the biotechnology sector.

India based startups providing friendly policies, innovative product solutions, have played a key role in attracting foreign investments for the startup. Foreign investment in India based startups are increasing day by day. According to data from venture intelligence, foreign venture capitalist firms or investing in Indian startups increasingly around 96%.

Attractive market- India is a huge interest for foreign investors to invest in the startup is because of the diversifying nature of the Indian population and to be able to test different product solutions and innovating something new every time.

Valuation friendly- Indian best startup companies allow 100% capital from foreign funds true issuing equity is like bonds, debentures, equity-linked instruments, etc. Moreover, India allows convertible notes to foreign persons for Rs. 25 lakh in a single transaction. Convertible notes allow the investors to make a guess of companies valuation for the next coming years. Moreover, convertible notes are hassle-free as compared to other forms of payment.

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ADVANTAGES OF STARTUPS IN INDIA FOR A FOREIGNER

1) Populated Country- Having a huge population India has a market to start a business with less hurdles alarming population establish something that promises to be a magnet for foreigners for yours to come. The huge population includes a variety of people, and a variety of people has a variety of tastes, which allows the startups to always keep innovating something new.

2) Efficient Tax System- For startups, especially, the tax system has been made very easy and not complicated, which would demoralize a youth to start up a business. Recently Indian tax system has been modified by Goods And Service Tax(GST).

3) Friendly Laws- the bill of Goods And Service Tax has been efficient with regard to the movement of products across borders. Some of the efficient business-friendly laws such as Direct Tax Code Bill, Land Acquisition Bill and Companies Bill have made it easy for foreign investors to enter the Indian market.

4) Reduced Operational Cost- India charges low cost in every sector be it internet, labour, salaries, infrastructure, etc. Tax policies in

India is also very moderate as compared to other countries hence the cost of business operation in India is comparatively low.

5) Trade Network- There are various trading partners in India to trade with, which provides a fast network of Management and the technological knowledge backed by free trade agreements. Hence developing human resources.

6) Initiatives Of Government- Government of India wants the youth to come up with their innovative ideas hence they provide relaxation in tax systems, innovative and attractive schemes, and policies from time to time, etc. Rules and regulations related to foreign investments have also been eased.

7) Startup India Movement- This scheme was introduced by the Government Of India to create possibilities for foreign investors and have a partnership with them in terms of trading.

CONCLUSION

Thus we can say that India, which is rich in minerals and agricultural resources, has seen a remarkable increase in foreign investments at a tremendous rate. Foreign policies by the Government of India have attracted foreign companies and foreign investors to benefit by investing in the startups of India, thus creating more job opportunities and wealth of the Indian economy.

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