How the government is killing Indian startups

Some of the recent moves by the Indian Government & its associated Institutions are hurting Indian Startups real bad.

Here’s how –

1. No Automatic Online Payments, thanks to ‘3D Secure’- RBI says, “We will not allow businesses to charge credit cards automatically, even if the credit card holder authorizes such a permission. Each time a transaction is done, a manual intervention by the card holder is necessary.” This is DUMB. This prevents companies from billing a customer on regular intervals automatically. This is inconvenient for the users and kills SaaS companies.

2. Lets kill Mobile payments as well – If the first one was not bad enough. The government felt that the best way to promote ‘Mobile e-commerce’ was to implementation of ‘OTP or One Time Password’ for mobile payments. Cleartrip recently talked about this yet another suicidal decision of the government to promote commerce on mobile here.

3. RBI’s (Pay) pal – Repercussion of the first point killed Pay Pal in India. If you are unaware of this major development, read more about the problem here. Here is also a petition started to appeal against this move :  http://ieoi.in/

4. TRAI’s NCPR black magic – The new regulations were intended to stop unsolicited calls & smses are a nightmare for Indian startups which offer mobile value added services. The government provides you 3 options – either allow spam, register with NDNC (National Do Not Call Registry) to avoid all spam or register for spam from a particular category only. Here are few opinions on the same – NCPR – Boon or Bust for SMS Pull Services

As illustrated above, over the past few months the governments policies are getting more and more restrictive and are affecting startups. I got really pissed when I came across few entrepreneurs who are giving serious thought to moving their successful startups / businesses out of India to take up one of the better options provided below.

While most the countries today are attracting entrepreneurs, the Indian government is least bothered. Here are a few countries being considered :

1. Chile – “In 2010, the program brought 23 teams from all corners of the world, providing them a $40,000 subsidy (no equity) to take part for six months, and a temporary 1-year visa to develop their projects along with access to the most potent social and capital networks in the country.” – http://www.startupchile.org/

2. US – “Under the proposed legislation, instead of the visa going to an investor, a startup company founder or entrepreneur who receives a minimum equity investment of $250,000 could qualify as an EB-5 visa recipient. At least $100,000 would have to come from a sponsoring US investing entity. Overall we hope to make it easier for more entrepreneurs to start businesses in the US and create jobs.” – http://www.startupvisa.com/

3. Singapore – Heard it takes just one credit card and 30 minutes on the internet to start a company in Singapore.

We were lucky to have the IT revolution in India, which has got us to this point. We might not be as lucky with the ‘Startup’ revolution which we see rising in India today.

Disclaimer : I am founder of a tech company (Practo) and my views are inclined to the hardships faced by the tech startups in India.

Advertisements
How the government is killing Indian startups

14 thoughts on “How the government is killing Indian startups

  1. Siddhartha says:

    As a consumer and a regular user of online payments on various services, i feel much safer thanks to “No Automatic Online Payments” policy adopted by the government.

    1. shashanknd says:

      @Sid – Agreed, for B2C consumers the automatic payments may not be a necessity, but for B2B businesses it is extremely difficult to keep paying for multiple monthly services. Due to which SaaS companies too are forced to collect quarterly, annual payments for their services and deprive the B2B businesses of the ‘pay per month’ model.

  2. Kailash says:

    There are ways in which you can create automatic money transfers from the customer point of view. But it is linked to a bank account rather than a credit card account. And I think that’s a viable option to consider as well if I want to automate my payments. I think it is good to be a little conservative.

    1. shashanknd says:

      @Kailash – True, automating the transfer from a bank account is possible but is it really a lot safer than automating it from a credit card?

      Rather than just passing on your credit card details, to automate the payment from ones’ bank, we have to take the account details of the merchant, go to our online banking, setup & authorize the recursive payment. It because of this inconvenience, we do not do it. All I am asking for is to give the credit card holder a choice.

      1. I think OnePay from zaakpay.com is a good fit for B2B type requirements. I havn’t used it myself, but the offering looks to benefit B2B more than B2C type payments..

  3. Very well written post. Our government policy assumes misuse and fraud as a default use-case, and uses that as a starting point. Other countries treat fraud as well, fraud, and the default use-case makes it easy for everyone.

    Our government likes to over-regulate because they can make money when harassed companies want to get their stuff done.

  4. I am already seeing a lot of SAAS companies planning to shift base to the US (some have shifted already). High time Government realized that the next wave of growth in India would be driven by scrappy young startups, not massive IT companies.

  5. Wouldn’t “Indian Web Startups” be the more accurate version?* Would it be “RBI Policies” rather than the “Government” and wouldnt it be “Hindrance” rather than “Killing”

    I’m with you 100%, but unlike the media why sensationalizes everything, we need to be specific to what we are really talking about to go about finding a resolution.

    All that said, I absolutely agree with most of your points. Payments online today are a pain. And that is hurting the cashflow, revenue stream for web startups in India. But the issues that RBI raises on fraud, and the ‘rich’ laundering money is also a blatant reality.

    I believe, and am coming to realize that bank accounts instead of credit cards and “paypal” accounts is what the official stance is. And there might be logical reasoning behind it.

    I trust that if anyone can work around policies, its Entrepreneurs. There are quite a few folks who have setup bank accounts in the US to manage the payments and they pay taxes when they bring the money into India. You can explore options like that, if your revenue stream is predominantly out of India and certain processes are required.

    PS: I dug a bit deeper, including writing mails to someone in RBI to realize that RBI hasnt amended any policies to hurt Paypal. Paypal however with their increased flow of transactions is refusing to comply with Indian laws. The fault on that matter, isnt on RBI, its squarely on Paypal, as far as I understand so far.

    *The Govt is still the biggest funder of early stage startups when it comes to India – even bigger than the Angel and VC community Put together. lets not kick the wrong hornet’s nest, because of a little frustration over some policies. http://www.dsir.gov.in/tpdup/tepp/tepplop.htm

  6. @shashanknd @Kailash How Automating Payment From Bank Account is possible ?? Can you elaborate more on that ??

    Are you talking about automating NEFT/RTGS transfer ??

    or

    Automating Payment Gateways that support Net Banking ?

  7. right says:

    not a very well researched article and creating a bad image of India out of misconception.

    Mr Vijay pointed it out very accurately. I want to add that the total amount the start ups like you and me earn is way less then what corrupt business persons sends away to through this. To add to this its probably greediness of the company which didn’t pay govt. license fees for doing financial business with Indians.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s