SHANKAR PEDNEKAR lists out guidelines for NRIs who wish to start businesses in India; and more particularly, Goa
The scope of this article is for NRIs who want to venture into the lucrative Indian startup ecosystem at large; and Goa in particular. Non-Resident Indians (NRIs), having resided in developed countries like USA, Europe, and Asian Pacific countries with global perspective can contribute significantly to regional employment.
Preamble
According to a Ministry of External Affairs report, there are 29 million NRIs and Person of Indian Origin (PIO) including Overseas Citizen of India (OCI) residing outside India. It is not clear to what percentage of them belong to Konkan region of Goa, Karnataka and Maharashtra.
The Goa Government under the leadership of Chief Minister Dr Pramod Sawant, has come up with a Goa Vision Document. Regional seasoned industry leaders have contributed with their inputs. I hope that this document will be made available to the public so that we NRIs can understand what is planned and what will be made available.
Indian Company Registration for NRIs
NRIs can register a Private Limited Company, Public Limited Company or Limited Liability Partnership (LLP) in India. Private or Public Limited Company allows Foreign Direct Investment (FDI) into India automatically in most sectors. LLPs allow FDI under the automatic route only in those sectors or activities that allow 100% FDI through the automatic route.
As per FEMA guidelines, FDI is not allowed for any other types of business like a proprietorship firm, partnership firm or one-person company. Thus, NRIs cannot start a partnership firm, proprietorship business or one-person company in India.
Considering the FDI and Foreign Exchange Management Act (FEMA) regulations, the ideal type of business entity that the NRIs can establish in India would be a private limited or public limited company, as FDI is allowed under the automatic route for most sectors.
A private limited company must have a minimum of two directors, and a public limited company must have a minimum of three directors. There should be at least one Indian citizen director residing in India in the company established by NRIs.
Source: https://cleartax.in/s/indian-company-registration-nris-foreign- nationals.
Constraints for Startup ecosystem for NRIs
Bootstrap capital:
For startups with resident Indian directors, government provides bootstrapping capital to the tune of Rs.5 million. However this capital is not available if one of the directors is NRI. It’s difficult to secure FDI unless Minimum Viable Product (MVP) is in place.
Constraints around nature of business activity
NRI need to clearly define boundaries around the business that the company will get involved with. This means for each business a separate private company needs to be created which will have its own FEMA regulations depending on government regulations. However this is not an issue as the government has considered all these factors.
Huge Compliance
Private Limited companies have few known compliance requirements.
• Employees Provident Fund Organisation (EPFO) contribution. Government has put cap of Rs. 1800
• Auditor requirements even if company revenue is zero. Audit costs in metros can vary and create uncomfortable situations.
• Government website cautioning on SFIO (Serious Fraud Investigation) discouraging NRIs whose livelihood depends on resident country. Also this discourages educated resident Indians from taking risk of becoming directors due to other factors like conflict of interest and unnecessary and uncomfortable assumptions.
Compliance comparison with other countries.
Australia: The Australian Security and Investment Commission (ASIC) has created a simplified documentation that easily walks you through creating a business entity. Though India has adequate documentation, Australia does not burden you with fraudulent investigation.
Secondly, the Australian taxation office automatically receives revenue inputs depending on your Company Identification Number (CIN) and filing takes not more than 15 minutes. It does not need the services of an expensive professional auditor unless you have a large business.
PEST Analysis, Why India and Goa are attractive destinations
P: Political, E: Economic: S: Social, T: Technological. Other thoughts Goa can continues to expand in the following areas Technology: Earlier the Verna Industrial Estate used to be closer to Dabolim Airport, along with Panjim and Margao providing a place for corporate houses. Goa’s abundance of water and land availability near Mopa International Airport, may attract investment in the tech sector from the likes of Google, Amazon, Microsoft.
How Goa Can Benefit
Under the Environmental, Social and Governance (ESG) framework, governance is the key. Good governance compliance reporting qualifies investments from likes of sovereign funds for large projects exceeding INR 500 million. To get there, we need to create a favorable environment wherein NRIs are encouraged to start small and grow big.
