Startup India Association (SIA), an advocacy group representing the Indian startup community, has requested the commerce ministry to exempt startups and their existing shareholders from the foreign direct investment (FDI) curbs placed on investors from neighbouring nations such as China.
In a letter to commerce minister Piyush Goyal, SIA said that since 2015, foreign investors have put in around $82.1 billion into Indian startups through various funding channels, including foreign portfolio investments (FPIs), venture capital and alternative investment funds (AIFs). Of this, Chinese investors have poured in over $8 billion.
“Large VC Funds from China have raised money from the USA and other global investors exclusively for investments in Start-ups in Emerging Markets, the bulk of it to be deployed in India. These investments and the ones that are already in the works will significantly get affected and startups (looking to raise capital from) foreign destination including China would now need to re-work their strategies from scratch which will cost them time and money (due to FDI restrictions),” SIA said in its letter.
Besides appealing for easing of the FDI curbs, SIA also requested the government to set up a ₹25,000-crore “Startup India Fund” registered as an AIF to bail out ailing startups that are “running out of cash” or are “unable to raise further capital”.
SIA also cautioned that if Indian startups “are not bailed out well on time, there are likely to be significant job losses in the country, both current as well as in the future”. According to industry body Nasscom, in 2019, startups employed between 390,000 and 430,000 people and this could go up to 1.25 million direct jobs by 2025.
On 23 April, the government amended the Foreign Exchange Management Act (Fema) to curb investment from countries such as China and Pakistan. With the new amendment, any local startup looking to raise money from funds or individual investors from neighbouring countries such as China will now have to take additional approvals from the nodal ministry.
The move comes amid reports of China trying to acquire distressed assets in different industry segments globally, with companies seeing a steep fall in their valuations.
SIA said that Indian start-ups such as Paytm, Byju’s, Zomato and Swiggy have all raised large amounts of capital from Chinese investors. These companies will now need to raise urgent capital “to overcome the crisis or pivot its business plans”. But with the curbs, they will be forced to spend more time and resources getting more permissions.
This article was first published on livemint.com