2018 In Review: Policywise, A Year Of Awakening For Indian Startups

This article is part of Inc42’s special year-end series — 2018 In Review — in which we will refresh your memory on the major developments in the Indian startup ecosystem and their impact on various stakeholders — from entrepreneurs to investors. Find more stories from this series here.

A painting on a canvas enshrouds a thousand words. French painter Jacques-Louis David’s La Mort de Socrate at the Metropolitan Museum of Art, New York, is one such work of art. A painting of its own league, it delineates how Socrates used his death as a tool to oppose the policies of his state rulers. David used muted colours to mark the benumbed nature of the policies and beliefs of the time (400 BC).

More than 2,400 years later, government policies across the globe are still struggling to accommodate, regulate, and support new-age, emerging ideas, technologies, and businesses. Even as this year-end story was being drafted, while the Madras High Court has suspended its interim ban order pertaining to online sale of medicines, Delhi High Court has now extended the ban, citing the lack of policies and regulations.

Having said that, it would be injudicious to say that the government of the day hasn’t made any efforts in this direction. The pace of policy formulation may be slow, but this past year, the Indian government has taken a number of policy initiatives to embolden tech startups and to pave the way for new technologies to help shape new businesses. While some of these policies — Drone Regulations 1.0 — are already in effect now, others (such as Personal Data Protection Bill, ecommerce policy, epharma policy) have been drafted and are pending approval.

While we covered angel tax exemption which recently took Twitter on a ride in Inc42’s yearender special on the biggest controversies in the ecosystem, let’s take a look at the other policy reforms of the year gone by.

Drone Regulations 1.0: Charting New Skies

India has never had a drone policy before. In fact, flying of drones by civilians or for civil applications was strictly banned. Only the Indian Air Force, the Army, and some limited research-based applications of unmanned aircraft systems (UAS) were allowed.

But ironically, for a country with a drone ban in place, the bulk of the 40K-odd drones in Indian skies are civil ones and Indians are estimated to have spent $5.6 Mn (INR 40 Cr) in buying drones during 2016 and 2017. Also, India ranked first among drone-importing nations lapping up 22.5% of the world’s UAV imports between 1985 and 2014.

The Making of The Drone Policy

On October 7, 2014, the Directorate General of Civil Aviation (DGCA), while reiterating that no non-governmental agency, organisation, or individual would launch a UAS in Indian civil airspace for any purpose whatsoever, stated that DGCA was in the process of formulating regulations (and harmonising them with global ones) for certification and operation of UAS in the Indian civil airspace.

However, it also said that the civil operation of UAS would require the approval of the air navigation service provider, the defence ministry, the Ministry of Home Affairs, and other concerned security agencies, besides the DGCA.

The following year, on March 16, 2015, the-then minister of state for civil aviation, Mahesh Sharma, informed the lower house of Parliament that the DGCA was in the process of developing interim operations guidelines for the civil use of UAS.

On April 21, 2016, the DGCA released the first-ever draft guidelines for obtaining a Unique Identification Number (UIN) and the operation of civil UAS.

However, the draft, which defined only four categories of drones with nano included in micro, never saw the light of day. On November 1, 2017, another draft was released for further public consultation and feedback.

In April 2018, the Indian government announced the formation of a 13-member task force to be chaired by the minister of state for civil aviation, Jayant Sinha. Other members of the task force were civil aviation secretary R N Choubey, director general of civil aviation B S Bhullar, and Airports Authority of India chairman Guruprasad Mohapatra.

In June, the task force further formed three committees to work separately on manufacturing and licensing of drones, airspace and air traffic management, and policy and law related issues.

Retaining most of the guidelines and policy architecture as drafted by the DGCA in November 2017, the final draft drone policy was then released on August 27, 2018.

The drone policy, named Drone Regulations 1.0, came into effect from December 1, 2018.

What’s In The Policy

The key points of the Drone Regulations 1.0 are:

Classification: As per the regulation, UAS for civil applications have been categorised by the maximum take-off weight — nano (< 250 gm), micro (250 gm-2 kg), small (2 kg-25 kg), medium (25 kg-150 kg) and large (> 150 kg).

UIN and Pilot License: All drones except nano and those owned by central intelligence agencies and some permitted research organisations are to be registered and issued with Unique Identification Numbers (UIN). Barring Nano and Micro categories, a remote pilot applying for Unmanned Aircraft Operator Permit (UAOP) must be 18 yrs old.

No Drone Zones: The regulation defines ‘No Drone Zones’ around airports, near international borders and other areas of significance such as Vijay Chowk in Delhi, the State Secretariat Complex in State Capitals, strategic locations, vital military installations, etc.

Digital Sky Platform: The Drone Regulations 1.0 paved the way for an online platform called the Digital Sky Platform where drone pilots, drone operators, and manufacturers need to register themselves and obtain their licenses/UINs. Operations through the Digital Sky Platform are based on the NPNT (No Permission, No Take off) formula.

There are different colour zones visible to the applicant while applying on the digital sky platform, viz, Red Zone: flying not permitted; Yellow Zone (controlled airspace): permission required before flying; and Green Zone (uncontrolled airspace): automatic permission.

The platform is currently running in beta version.

Mandatory: The mandatory equipment required for operation of RPAS (Remote-piloted Aircraft System), except the nano category, are (a) GNSS (Global Navigation Satellite System) (GPS), (b) Return-To-Home (RTH), (c) Anti-collision light (d) ID-Plate, (e) Flight controller with flight data logging capability, and (f) RFID (Radio Frequency Identification) and SIM for enabling NPNT.

Flying Restrictions: As per Regulations 1.0, drones can be operated within the visual line of sight (VLoS) during the daytime only and up to a maximum altitude of 400 feet. The regulations don’t permit food and grocery deliveries through drones as of now.

The limitations of Drone Regulations 1.0 are understandable. There was no air traffic management system at low altitude in place before.

The good news is that the DGCA wants widen the scope of the regulations based on real feedback and operational issues.  The task force, under the chairmanship of Sinha, is already working on Drone Regulations 2.0.

Electric Vehicles: Targets Defined And Redefined, Not Policy

Nine out of the 10 most polluted cities in the world are in India. Is there even any doubt that the country needs to go electric with a vengeance?

But instead of drafting a robust electric vehicle (EV) policy, the year saw the government move back and forth on the Electric Vehicle Action Plan and Policy (EVAPP) like a pendulum. In March this year, the government tasked its think tank, NITI Aayog, to coordinate with various ministries — heavy industries, road transport and highways, and power — and come up with a number of EV-related action plans to be released by the concerned ministries separately.

Moving away from forming an EV policy wasn’t the only back and forth by the government on the issue.

In March 2017, the-then Union power minister Piyush Goyal had boldly stated that no petrol or diesel cars would be seen on Indian roads after 2030.

However, the ambitious target of going all electric by 2030 soon appeared to be a mission impossible as automobile companies found out that the government had no plans in place to achieve it. A white paper by the Society of Indian Automobile Manufacturers (SIAM) predicted that going all-EV might not be possible before 2047.

Realising that it had bitten off more than it could chew, the government did a flip-flop on this as well. Amid huge backlash from automobile companies, in January this year, Babul Supriyo, the minister of state for heavy industries, said, “There are, at present, no plans under consideration of the Department of Heavy Industry to make all vehicles in the country powered by electricity by 2030.”

In February this year, while Union transport minister Nitin Gadkari said that there was no need for an EV policy at all, the Centre reset its EV goal to a realistic target of 30% electric vehicles by 2030.

In September, Gadkari announced further revised plans to go 15% all-electric in the next five years.

Extending FAME On An Adhoc Basis

Back in 2013, the government had unveiled the National Electric Mobility Mission Plan (NEMMP) 2020. The plan aimed to deploy around 7 Mn hybrid and all-electric vehicles in the country by 2020.

In order to meet the NEMMP target, on March 31, 2018, the Department of Heavy Industry (DHI) had announced a scheme namely FAME-India (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India). Phase I of the scheme was implemented for two years, starting from April 1, 2015.

Later, FAME-India Phase I was extended by six months to September 1, 2017, then for another six months to March 31, 2018, and a third time to September 30, 2018.

Effective October 1, 2018, FAME-India Phase I was extended to March 31, 2019. However, some restrictions have also been put into place. For instance, EVs not requiring any registration will be excluded from the scope of the scheme, irrespective of the type of battery used in the vehicle.

Personal Data Protection Bill Draft: Need For Speed

The former US CIA programmer Edward Snowden once said, “Sometimes the scandal is not what law was broken, but what the law allows.”

India has hardly any law to protect its citizens’ data privacy. The Facebook-Cambridge Analytica exposed how 5.6 Lakh Indians’ data went for toss owing to the lack of data protection and privacy laws.

This year, in a significant development, a 10-member committee led by Justice B N Srikrishna submitted the draft Personal Data Protection Bill (PDP Bill) to Union minister Ravi Shankar Prasad. Barring some RBI norms for its regulated entities and Telecom Regulatory Authority of India (TRAI) guidelines for telecom companies, India currently does not have any data privacy act to ensure the user’s (data principal’s) right to privacy. The Supreme Court of India last year recognised the right to privacy as a fundamental right of every Indian.

The draft Bill made provisions for the data localisation, user’s consent during every data transaction, heavy penalty to fiduciaries in case of data theft or breach, the right to be forgotten, and the formation of an independent Data Regulatory Authority.

However, the draft Bill, which received both positive and negative feedback, is still pending with the MeitY, and is expected to undergo further amendments.

Even before implementation, the draft PDP Bill has given rise to a significant discourse across the country, which has helped raise data privacy awareness among both data fiduciaries and data principals.

However, not all stakeholders are happy with the data localisation provision, particularly foreign companies doing business in India. The EU termed the data localisation requirements proposed by India as “unnecessary, harmful and likely to have negative effects on trade and investments.”

Draft Ecommerce Policy: Scrapped To Start Over Again

India, with over 462 Mn internet users, has been touted as one of the most high-potential ecommerce markets in the world. However, Indian ecommerce is still pretty nascent compared with the Chinese and US markets. Its annual turnover — $33 Bn — is still significantly lower than what Chinese ecommerce players sell in just a one-day sale — Singles Day ($45 Bn).

The Indian ecommerce fraternity has huge expectations from the Modi government, which had promised to introduce an ecommerce-friendly policy back in 2014 when it came to power.

However, it’s only after four years that the government finally set up a task force under the guidance of a 70-member think tank headed by the minister for commerce and industry, Suresh Prabhu.

The draft ecommerce policy proposed by the committee favours Indian ecommerce players and vendors in terms of FDI and seeks to limit discounts by ecommerce platforms. It also makes a ‘Made in India’ push and proposes a local marketplace only for Indian MSMEs. The draft also advocates enlisting of the home-made RuPay payments cards mandatory for payments companies.

The draft Policy, which was released in July this year, has been reportedly dropped and the Suresh Prabhu-led ecommerce think tank is now considering drafting a fresh policy, which will only delay the policy reform further.

National Electronics Policy: Promoting Industry R&D

This year, the ministry of electronics and Information technology (MeitY) also released the draft of National Policy On Electronics 2018. The draft NPE 2018, which is also pending with the MeitY, is set to replace the existing National Policy on Electronics 2012 (NPE 2012).

The NPE 2018 aims to achieve a turnover of $400 Bn by 2025. The target was earlier to achieve the same by 2020.

The draft also includes targeted production of 1.0 Bn mobile handsets by 2025, valued at $190 Bn, including 600 Mn mobile handsets valued at $110 Bn for export.

Interestingly, while the draft does mention that 4.5 Lakh direct and indirect jobs were created in the last three years by 118 mobile manufacturing units, it does not set any objectives as far employment and investments are concerned.

Aimed to encourage industry-led R&D and innovation in all sub-sectors of electronics, the draft NPE 2018 plans to create a comprehensive startup ecosystem in emerging technology areas such as 5G, IoT, artificial intelligence (AI), machine learning, etc, and their applications in areas such as defence, agriculture, health, smart cities and automation, with a special focus on solving real-life problems.

Draft PSS Amendment Bill: Hanging In Balance

According to Credit Suisse estimates in a report entitled ‘Digital Payment: Trends, Issues and Opportunities’, the Indian digital payments market In India is expected to grow to $1 Tn by 2023. led by growth in mobile payments. This presents huge business opportunities for companies in the digital payments space. Just mobile payments alone are slated to rise from $10 Bn in 2017-18 to $190 Bn by 2023.

Hence, besides ecommerce, payments has been another sector of interest for Indian startups. This is also one of the few areas where policies are clearer as compared to ecommerce or data protection. The payments space has been largely governed by the RBI under the Payments and Settlement Systems (PSS) Act 2007.

However, the PSS Act, since its implementation, has gone through a series of amendments. It continues to remain a point of interest for all related stakeholders and, perhaps, most of all, for the Centre.

This year, the Centre constituted a 7-member interministerial committee, led by Subhash Chandra Garg, secretary of the Department of Economic Affairs (DEA), which submitted its recommendations to amend the PSS Act further, sparking a series of controversies.

One of its biggest recommendations was that the payments regulatory board (PRB) be made independent of the RBI. As of yet, it is the RBI that controls the PRB with the RBI governor heading the payments’ board as well.

The PSS Act 2007, which designates the RBI as the authority for payments and settlements in India, has given rise to a power tussle between the Centre and the RBI.

The RBI, in its dissent note, has criticised the draft PSS Amendment Bill on several counts. The RBI maintained that payment systems are a subset of currency, which is regulated by the RBI. The overarching impact of the monetary policy on payments and settlement systems and vice versa provides support for regulation of payment systems by the monetary authority (the RBI).

The RBI maintained that in India, the payments system is bank-dominated. Regulation of banking systems and payments system by the same regulator will ensure synergy and inspire public confidence in the payment instruments.

The government has not acted on the recommendations of the Garg Committee so far. And, they’re now unlikely to be pursued further as RBI governor general Urjit Patel has already resigned amid increasing friction between the government and the RBI.

Epharmacy Policy: Why The Ban On Online Medicines?

According to reports, India is one of the top five countries in the world where people search ‘online medicine apps.’ This is telling of the rising awareness and the future potential of the Indian epharmacy market.

Currently, the estimated size of the Indian epharmacy market is reportedly $142 Mn (INR 1000 Cr) — just 1% of the traditional pharma market, according to a report entitled ‘India Epharmacy Market Opportunity Outlook 2024’. However, the epharmacy market potential in India is over $1 Bn with more than 30 startups assisting the growth of this segment in various regions of India, as per the same report.

In August, the Indian government released a draft epharmacy policy. The regulation has reportedly been approved by the Drug Technical Advisory Board (DTAB). However, the current situation on the ground is unfriendly to epharma startups, as the Madras High Court and Delhi High Court have banned epharma companies from selling medicines online.

Bringing Policies Down To The Every District

The Indian startup ecosystem has been so far concentrated in a few cities — mainly Delhi, NCR, Mumbai, Bengaluru, Chennai, and Pune. This is mostly because of the availability of readymade infrastructure, talent pool, and consumer awareness level in these cities.

To further drive the Startup India programme into all Indian states, the DIPP, early this year in February, announced that it would rank the states in accordance with a framework.

Besides 17 states (including Karnataka, Rajasthan, and Kerala) that already have startup-oriented policies, Goa, Meghalaya, and Jammu and Kashmir joined the Startup India bandwagon this year, launching their own startup policies.

The DIPP’s State Startup Ranking is set to be released on December 20. The DIPP has also recommended that the states too must rank their districts which will help widespread the startup ecosystem further. This will not only improve the ecosystem across the country but will help identify entrepreneurs and provide them with the right support, right in their home area.

“That’s the beauty of startup spirit. It could generate business anywhere and everywhere, bridging the gap of employment simultaneously,” commerce minister Suresh Prabhu said at the Inc42’s The Ecosystem Summit.

Policywise, it was a year of awakening for the India startup ecosystem. Even though most of the draft policies remained drafts, it was a step in the right direction and helped raise awareness on the related issues.

Hopefully, 2019 will be the year these policies will see the light of day and help regulate and support emerging technology sectors.