The Indian government appears to be betting on startups to lead the revival of job creation, perhaps even catalyze the broader economy, as old-economy businesses hold off hiring. The Centre is reportedly planning to let startups issue half their paid-up capital as sweat equity and extend the exemption period for several regulatory restrictions. For one, they would not be required to undertake financial filings such as cash-flow statements for 10 years, up from 5 years currently. As per the proposal, two board meetings in a year would suffice, instead of the four that these companies had to hold. More importantly, a rule that prohibits other private entities from raising deposits above 100% of their paid-up equity capital won’t apply to startups for 10 years after the date of their incorporation.

The proposed changes in the norms governing startups are in sync with a change in the definition of such entities announced by the government earlier this year. Accordingly, for an entity to qualify as a startup, it must be in operation for 10 years, from 7 years previously.

The proposals, some of which would require parliamentary approval, could encourage the startup ecosystem. They would make it easier for startups to raise funds, ease their compliance burden, and make it easier for them to do business. An expanded amount of sweat equity—shares issued to founders or employees for their non-monetary investment in the form of hard work, know-how, and loyalty—could help startups achieve success simply by depending on people with enough skin in the game to make it happen.

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