FCRA, Electronic Gold Receipts, Freedom of choice in marriage, Several start-ups lose their Unicorn status
Rishi Sunak’s elevation as UK PM
Sunak’s elevation, as the UK’s PM, can be termed as a matter of pride for India, the country once ruled by the British for over 300 years. PM Modi said, he looked forward to working closely together on global issues and implementing the Roadmap 2030 for bilateral relations. The Roadmap 2030 for India-U.K. future relations was launched last year.
- Rishi Sunak was born in 1980 in Southampton on England’s south coast to parents of Indian descent, who were both born in East Africa. He grew up in a middle-class family, his father a family doctor and his mother a pharmacist, and says he inherited their hard-working ethos
- He comes from a Punjabi Khatri family and his grandparent had moved to Africa from Gujranwala, a city which is currently in the Punjab province of Pakistan, and later to the UK before India gained Independence.
- Britain is home to a vibrant and diverse community of people with roots in India, which it ruled as a colony for nearly a century before India won independence in 1947. As many as 1.5 million people of Indian descent live in England and Wales, making them the largest ethnic group after white Britons.
- Sunak’s triumph a significant milestone for Britain’s Indian diaspora, whose long struggle against racism and prejudice is rarely a prominent issue in British politics.
Challenges before him while holding the leadership includes:
- To grips with an economic crisis that has left millions of Britons struggling to afford food and energy bills.
- To unite a governing party that is riven with divisions.
- He needs to tackle a mounting economic crisis, a warring political party and a deeply divided country.
Relevance for India:
- There is renewed hope that the India-UK free trade agreement (FTA) will get a much-needed impetus after the Diwali deadline for draft completion was missed amid political turmoil in the U.K.
- As Mr Sunak is supportive of India playing an increasingly influential role in the region, and indeed, in the world as a massive economy and the world’s largest democracy and an FTA would prove a greater champion of that cause.
- Financial service is an area where there’s enormous opportunity for both of our countries. India’s goal is to spread insurance across the entire economy, because insurance is a great thing for enabling protection for individuals and growth.
- The financial hub of the U.K. capital, expressed the hope that Mr Sunak’s focus on services would take the FTA in the right direction. An India trade deal could be one of the most ambitious and commercially meaningful deals to the UK.As services make up around 70% of annual trade between our countries.
- Sunak said, the U.K. doesn’t have a monopoly on opportunity. There’s an enormous amount of opportunity in India, also to make sure that if this living bridge is going to be a real thing, to make it easier for people in the UK to go to India, to study at world class institutions to go work in all these amazing start-ups.
FCRA
The Ministry of Home Affairs has cancelled the Foreign Contribution (Regulation) Act (FCRA) license of Rajiv Gandhi Foundation (RGF) and Rajiv Gandhi Charitable Trust (RGCT), organizations that are associated with the Nehru-Gandhi family, for alleged violations of the provisions of the Act.
What is FCRA- Foreign Contribution (Regulation) Act?
- The law seeks to regulate foreign donations to individuals and associations so that they function “in a manner consistent with the values of a sovereign democratic republic”.
- The law was enacted during the Emergency in 1976 amid apprehension that foreign powers were interfering in India’s affairs by pumping in funds through independent organisations.
What are the regulations required after amendment in 2020?
- It bars public servants from receiving foreign contributions.
- The foreign contribution must be received only in an account designated by the bank as FCRA account in such branches of the State Bank of India, New Delhi.
- No funds other than the foreign contribution should be received or deposited in this account.
- It allowed the government to restrict usage of unutilized foreign contribution.
Can Individuals receive money?
- Foreign funding in India is regulated under FCRA act. Individuals are permitted to accept foreign contributions without permission of MHA.
- However, the monetary limit for acceptance of such foreign contributions shall be less than Rs. 25,000.
Prohibitions under the act:
There are some provisions with respect to the foreign funds received, they must not be utilized by –
- candidates for elections.
- journalists or newspaper and media broadcast companies.
- judges and government servants, members of legislature and political parties or their office-bearers, and organisations of a political nature.
BSE launches Electronic Gold Receipts
Leading stock exchange BSE has launched Electronic Gold Receipt (EGR) on its platform, a move that will help in efficient and transparent price discovery of the yellow metal.
- It introduced two new products of 995 and 999 purity, trading in multiples of 1 gram and deliveries in multiples of 10 gram and 100 gram.
- The exchange received final approval from the Securities and Exchange Board of India (SEBI) for introducing EGR on its platform.
- EGRs will cater to all market participants, which means that buyers and sellers on the exchange will include individual investors, as well as commercial participants along the value chain like importers, banks, refiners, bullion traders, jewellery manufacturers, and retailers.
- The launch of EGRs represents a significant milestone not only for the BSE but also for the global bullion industry.
- The EGR platform will lead to greater assurance in the quality of gold supplied, efficient price discovery, and transparency in transacting. This can create a vibrant gold ecosystem in India by enabling actual fungibility of gold.
Flashback
- India is the second largest consumer of gold globally with annual gold demand of approximately 800-900 tonne and holds an important position in the global markets.
- The country has remained a price-taker in the global markets, and at present, does not play any significant role in influencing the price-setting for the commodity.
- EGR infuses transparency in gold spot transactions, enables India to emerge as the price setter, and would eliminate existing market inefficiencies.
What is EGR?
- SEBI’s concept paper proposes issuing an electronic gold receipt in exchange pf physical gold (similar to equity shares), deposited with a vault manager (like a depositary participant) and this receipt can then be traded.
- The government wants India’s outsized influence in the physical market for gold to be visible in the financial market for gold as well.
Why need EGRs?
- EGI is a way of getting people to not hoard gold, by creating an exchange that provides transparent pricing and liquidity (to cash or back to gold).
- India is a net importer of gold. We are price takers and not price setters. The whole idea is to move from being price takers to be price setters.
- Price discovery at the exchanges will thus lead to transparency in gold pricing.
- The gold exchanges would provide transparent price discovery, investment liquidity and assurance in the quality of gold.
What is the SEBI regulation?
- SEBI has also proposed a regulatory framework for setting up a gold exchange.
- Existing stock exchanges will be allowed to provide the platform for trading of EGRs.
- The denomination for trading of EGR and conversion of EGR into gold will be decided by the stock exchange with the approval of SEBI.
- The clearing corporation will settle the trades executed on the stock exchanges by way of transferring EGRs and funds to the buyer and seller, respectively.
How will EGR work?
- EGR holders, at their discretion, can withdraw the underlying gold from the vaults after surrendering the EGRs.
- SEBI-accredited vault managers will be responsible for the storage and safekeeping of gold deposits, creation of EGRs, withdrawal of gold, grievance redressal and periodic reconciliation of physical gold with the records of depository.
- The vault manager will have a networth of at least ₹50 crore.
Securities and Exchange Board of India (SEBI)
- The SEBI is the regulatory body for securities and commodity market in India under the jurisdiction of Ministry of Finance Government of India.
- It was established on 12 April 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992.
Jurisdiction of SEBI
- SEBI has to be responsive to the needs of three groups, which constitute the market:
- Issuers of securities
- Investors
- Market intermediaries
SEBI has three powers rolled into one body: quasi-legislative, quasi-judicial and quasi-executive.
- It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity.
- Though this makes it very powerful, there is an appeal process to create accountability.
- There is a Securities Appellate Tribunal which is a three-member tribunal and is currently headed by Justice Tarun Agarwala, former Chief Justice of the Meghalaya High Court.
- A second appeal lies directly to the Supreme Court.
Freedom of choice in marriage essence of personal liberty
Observing that, freedom of choice in marriage is an intrinsic part of the Constitution and questions of faith have no bearing on the freedom to choose a life partner, the Delhi High Court has said the police is expected to act expeditiously and with sensitivity for protection of couples apprehending hostility from others including family members.
1. The observation came while dealing with bail pleas arising from a case involving an alleged attempt to murder and physical assault on the complainant man by the family of the woman, who married him against the wishes of her family.
2. The court said it was “unfortunate” that necessary steps for ensuring the safety and security of the couple were not initiated by the police station concerned on their complaint when they were expected to act with promptitude and any such lapse cannot be accepted and thus called for action against those responsible.
3. The court also asked the Delhi Police Commissioner for taking necessary measures for sensitising police officials in dealing with such complaints.
4. The court directed, wherever, the life and liberty of any individual is concerned, especially in cases of couples legally marrying out of their own freewill and volition, the police is expected to act expeditiously and with sensitivity in accordance with law and take necessary measures for protection and safety of applicants concerned, if they apprehend hostility and concerns for their safety from different quarters including their own family members
5. The conduct of the police officials concerned in this regard (in this case) is depreciable and needs to be looked into and necessary action taken. Any such lapse cannot be accepted on behalf of the police.
Flashback
1. In India, the Protection of Life and Personal Liberty is a Fundamental Right granted to citizens under Part III of the Constitution of India, 1950.
2. These Fundamental Rights represent the foundational values cherished by the people and are granted against actions of the state, meaning that no act of any state authority can violate any such right of a citizen except according to the procedure established by law
3. The case of Maneka Gandhi v. Union of India, however, brought a sea change. The Supreme Court held that Articles 19(1) and 21 are not mutually exclusive as the Right to Life and Personal Liberty covers a wide variety of rights, some of which have been given additional protection under Article 19(1).
4. Article 19 and Article 21 go hand-in-hand and the procedure established by law restricting these rights should stand the scrutiny of other provisions of the Constitution as well – including Article 14. Thus, a law encroaching upon one’s personal liberty must not only pass the test of Article 21 but also of Article 14 and Article 19 of the Constitution.
Several start-ups lose their Unicorn status
Owing to decreased funding and crashes in late-stage deals, several startups in India may lose their Unicorn status. In total, around 105 start-ups in India attained the status of Unicorns between 2018 and 2022 but the active number of unicorns has now been reduced to 84.
- A company with a valuation of over $1 billion is considered to be a Unicorn in India.
- Several experts said that start-up founders are trying to avoid raising money due to unfavourable market conditions. But those who have already taken the “plunge” may lose the status quo as a unicorn.
- Most big start-up investors in India are global tech investors and they usually compare some of the domestic Indian start-up valuations with tech stocks in the US, Europe, Chinese and Japanese markets.
- In the last five years, around 7 Indian start-ups have lost their Unicorn status. It is due to investor markdowns and around 10 were listed on the bourses. Quikr and Hike lost their Unicorn status due to investor markdowns. Snapdeal, Shopclues and Paytm Mall lost their status due to a fall in valuation by their investors.
- Soft Bank, which is an investor in several Indian startups, has also marked down the valuations of over 280 firms. This has set a “worrying” precedent for Indian fund managers.
- Due to the very high valuation environment both globally and domestically during the last two years, and now due to US tech stock correction, most startups which are currently valued at more than a billion dollars should not be more in that $800 million.
What are Start-ups
- The Indian government defines a start-up as an entity less than seven years young with an annual turnover of less than 250 million rupees and headquartered in India.
- It is an initiative by the country’s Department of Industrial Policy and Promotion helps build a positive, effective ecosystem in the country, turning business ideas into a reality for a flourishing start-up environment.
- India has the 3rd largest start-up ecosystem in the world; expected to witness YoY growth of a consistent annual growth of 12-15%.
- India has about 50,000 startups in India in 2018; around 8,900 – 9,300 of these are technology led startups 1300 new tech startups were born in 2019 alone implying there are 2-3 tech startups born every day.
- Startups in the country have been able to create an estimated 40,000 new jobs over the year, taking the total jobs in the start-up ecosystem to 1.6-1.7 lakh
- Bangalore has been listed within the world’s 20 leading start-up cities in the 2019 Start-up Genome Project ranking. It is also ranked as one of the world’s five fastest growing start-up cities
What is a Unicorn?
- About:
- A unicorn is any privately owned firm with a market capitalization of more than USD 1 billion.
- It denotes new entities dedicated to offering creative solutions and new business models, among other things.
- Features:
- Disruptive innovation: Mostly, all the unicorns have brought a disruption in the field they belong to, for example, Uber transformed commuting.
- Technology-driven: The business model is driven by the latest technological innovations and trends.
- Consumer-focused: Their goal is to simplify things for consumers and be a part of their day-to-day life.
- Affordability: Keeping things affordable is another key highlight of these startups.
- Privately owned: Most of the unicorns are privately owned which gets their valuation bigger when an established company invests in it.
- Software-based: A recent report suggests that 87% of the unicorns’ products are software, 7% are hardware and the rest 6% are other products & services.
What is the State of Startups and Unicorns in India?
- Status:
- India has become the 3rd largest start-up ecosystem in the world after the US and China.
- 44 Indian start-ups have achieved unicorn status in 2021 taking the overall tally of unicorns to 83, most of which are in the services sector.
- India has seen such rapid growth in unicorns due to several strategic as well as conditional reasons.
- Growth Drivers:
- Government Support:
- Government of India is understanding the value of working with disruptive innovators across the value chain and using their innovations to improve public service delivery.
- Department of Animal Husbandary and Dairying has conducted a grand challenge in association with Startup India to award top startups in 5 categories 10 lakhs INR.
- Adoption of Digital Services:
- The pandemic accelerated the adoption of digital services by consumers helping start-ups and new-age ventures build tech-focused businesses for customers.
- Online Services and Work from Home Culture:
- Many Indians moved to online services exploring a host of services ranging from food delivery and Edu-tech to e-grocery.
- The Work-from-home culture helped increase the number of start-ups’ user base and expedited their business expansion plans and attracting investors.
- Digital Payments:
- The growth of Digital Payments is another aspect that aided the unicorn the most.
- Buyouts from Major Public Corporations:
- Many startups become unicorns as a result of buyouts from major public corporations that prefer to focus on acquisitions to grow their business rather than investing in internal growth.
- Government Support:
- Challenges:
- Increasing Investments Do Not Ensure Success of a Startup: Amid the Covid-19 crisis, when the central banks have released a global glut of liquidity, money is no more a difficult task to raise.
- The billions of dollars being invested in startups represent the large bets on distant outcomes, and not value generation by way of revenues.
- Plus, one cannot assume the high rate of survival of these startups with such investments, as it can be assured by profits.
- India, still a Marginal Player in the Space Sector: While India’s startups in the fintech and e-commerce sector are doing exceptionally well, the space startup sector remains an outlier
- Currently, the global space economy is worth USD 440 billion, with India having less than 2% share in the sector.
- This is despite the fact that India is a leading space-faring country with end-to-end capabilities to make satellites, develop augmented launch vehicles and deploy interplanetary missions.
- The reason for the lack of independent private participation in space includes the absence of a framework to provide transparency and clarity in laws.
- Currently, the global space economy is worth USD 440 billion, with India having less than 2% share in the sector.
- Indian Investors Unwilling to Take Risks: The big investors in India’s startup sector are from overseas, Japan’s SoftBank, China’s Alibaba, and Sequoia from the US.
- That’s because India does not have a serious venture capital industry with an appetite for risk.
- The country’s established conglomerates have mostly stuck to traditional businesses.
- Increasing Investments Do Not Ensure Success of a Startup: Amid the Covid-19 crisis, when the central banks have released a global glut of liquidity, money is no more a difficult task to raise.
What are the Related Government Initiatives?
- Startup Innovation Challenges: It is a fantastic opportunity for any startup to leverage their networking and fund-raising efforts.
- National Startup Awards: It seeks to recognize and reward outstanding startups and ecosystem enablers that are contributing to economic dynamism by spurring innovation and injecting competition.
- Ranking of States on Support to Startup Ecosystems: It is an evolved evaluation tool aimed to strengthen the support of States and UTs to holistically build their startup ecosystems.
- SCO Startup Forum: The first-ever Shanghai Cooperation Organisation (SCO) Startup Forum was launched in October 2020 to develop and improve startup ecosystems collectively.
- Prarambh: The ‘Prarambh’ Summit aims to provide a platform to the startups and young minds from around the world to come up with new ideas, innovation and invention.
Way Forward
- The accelerated development of the start-up ecosystem needs significant funding and therefore the role of venture capital and Angel Investors are critical.
- Apart from policy-level decisions that promote entrepreneurship, the onus is also on India’s corporate sector to foster entrepreneurialism, and create synergies to build impactful technology solutions, and sustainable and resource-efficient growth.
- With the recent events creating capital distrust in China, the world’s attention is sharpening on the lucrative tech opportunities in India and the value that could be created. For this, India requires decisive policy measures in addition to the Digital India Initiative.