Government Looking To Bring Stricter Regulations For Startups

The Centre is looking to bring stricter regulations for startups amid multiple instances of corporate governance lapses at these businesses.

According to an IANS report, the Company Law Committee (CLC), a panel under the Ministry of Corporate Affairs (MCA) and headed by the corporate affairs secretary, is exploring the possibility of formulating regulatory measures for startups.

The development comes nearly a month after the Union Minister of Commerce & Industry Piyush Goyal had said at the Startup20 Shikhar in Gurugram in July that the government was not keen on regulating startups.

Goyal had batted for a self-regulatory approach and in favour of the government staying out of regulating startups. “It will be good if we can ensure startups are given a free runway to grow and prosper,” said the commerce minister at the event.

The laws applicable to unlisted companies apply to Indian startups as well, as there are no specific laws or regulatory bodies for them. Again, though startups are generally smaller units, regulating them has to be a fine balancing act as too much regulation might hinder the growth of the world’s third-largest startup ecosystem.

The talk for government intervention with regulation in the startup ecosystem is a recent phenomenon, as multiple instances of governance lapses have shaken India’s fast-growing startup ecosystem.

The likes of BYJU’S, GoMechanic, Mojocare, Trell, Broker Network, BharatPe and Zilingo have all been reported to have had such issues in the past. GoMechanic, Zilingo and Mojocare are on the verge of closure, Broker Network is headed into arbitration and BYJU’S, despite having raised more than $6 Bn from investors, is struggling with massive financial issues.

Many of these cases have reached the MCA, which could have been a trigger for the CLC to sit down and explore options for overarching regulation in the startup ecosystem. 

The move to bring more regulations for startups can also be interpreted as yet another initiative from the Centre to end regulatory arbitrage for Indian startups. Many startup sectors, including fintech, online pharmacies, cryptocurrency, EVs, healthtech, edtech, ride-hailing and online gaming, have had stricter regulations implemented to end such arbitrage.

The year 2022 also saw many abrupt policy decisions that kept many startups and the stakeholders of emerging sectors on their toes.

This is also a sentiment shared by major investors. Speaking at Inc42’s MoneyX, GSF Accelerator’s Rajesh Sawhney pointed out that regulatory arbitrage is over for fintech startups.