India Regulatory Brief: Reforms to Encourage Startups, New Guidelines for Transport Aggregators, Telecoms

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India to Improve Business Environment for Startups

The federal government is planning to reduce regulatory hurdles for startups in India. According to a Department of Industrial Policy and Promotion (DIPP) official, an inter-ministerial panel is currently deliberating details of a policy that proposes exempting startups from 22 federal rules and regulations. These proposed reforms reportedly include exemption from company and labor laws until a startup’s turnover reaches a certain level, exemption from certain taxes for a specified period, and liberalizing the system for raising capital globally. The policy may be unveiled as early as next month, according to an official with the Ministry of Trade.

India’s startup ecosystem is dominated by e-commerce and technology-linked startups. Industry estimates indicate that there are about 3,200 tech-led startups in India, with 800 more emerging every year. With the proposed policy changes, the government hopes startups will expand to the manufacturing and agriculture sectors to generate employment and investments in smaller cities and towns. The reforms appear closely linked to the government’s new Startup India scheme, which is designed to encourage entrepreneurs in India.

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Government Issues Guidelines for Ola, Uber

The Ministry of Road Transport and Highways issued guidelines to regulate transport aggregators such as Uber and Ola. The federal government’s guidelines have been issued to state governments, who now must decide whether to accept or reject the guidelines on a state by state basis.

The guidelines define these ride-hailing mobile apps as “on-demand information technology-based transportation aggregators” instead of taxi companies. The guidelines propose that transport aggregators cannot own or lease vehicles, employ drivers directly or represent themselves as a taxi service, unless they register as a taxi operator. Transport aggregators, under the new guidelines, must perform background checks on drivers, maintain call centers and follow emission standards, among other requirements.

Both Uber and Ola have adopted the part-inventory model, where the companies own or lease vehicles that its drivers use for services. The new regulatory framework will also impose compliance burdens that could affect transport aggregators’ surge pricing model (raised prices during high demand).

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TRAI to Impose Fine for Dropped Calls

The Telecom Regulatory Authority of India (TRAI) announced plans to compensate mobile phone users Rupees 1 for every call dropped up to a maximum of three dropped calls a day. The regulation will take effect from January 1, 2016.

The new rules will require the telecommunication operator to send a message to the customer within four hours of a dropped call with details of the amount credited to the account. For post-paid customers, the details of the credit will be provided in the next bill.  The compensation will be paid to the calling customer who initiates a voice call.

The Cellular Operators Association of India (COAI) opposes the new norms, and may approach the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) to lobby against the fine.

Pension Regulator Seeks Fiscal Support

The Pension Fund Regulatory and Development Authority (PFRDA) is seeking funds from the government to expand its subscriber base, particularly in the corporate and private citizens segment. The PFRDA has been working closely with the federal and state governments, both having share accounts for over 90 percent of the total assets under management (AUM).

The PFRDA is also working to synchronize the National Pension System (NPS) for the government and corporate sector to bring uniformity between the two segments in terms of choice of pension fund managers and investment allocation. The idea is to create more competition for funds, improve efficiency and offer better service to the subscribers so that they have better information about the market and the performance of the Pension Fund Managers (PFMs).


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