RBI Vs. PayPal – A Few Million Indian Casualties
*Note: This post has got nothing to do with SEO, SEM etc
Reserve Bank of India (RBI) and PayPal has been up to arms for some time now- multiple times, multiple attempts, multiple regulations and the only casualties have been Indian freelancers and small Indian IT start ups that have been using PayPal for their payment processing.
I received the most recent PayPal email on this yesterday that says..
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Payments from PayPal needs to be withdrawn to bank account within 7 days
This is most likely because if they hold money for more than 7 days RBI would want them to be treated like a bank(also pay interest) and they would come under RBI regulations. RBI doesn’t seem to understand the “online wallet” concept yet and PayPal don’t want to have RBI as the big boss either. So, the burden is now on users to move their money out within 7 days.
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Export related payments may not exceed $500/transaction
We are still stuck with the FEMA rules that were framed pre-internet/ecommerce revolution and PayPal would need to report any transactions above $500 to RBI – which they want to avoid and so they have put the burden on their users.
Now let’s try to understand what this means for India as a country:
- The whole process of accepting payments from International clients becomes a lot more hazardous and restricted resulting in client’s getting irritated about working with Indian freelancers. Think if a client needs to pay you $600 – he will have to make two separate payments – isn’t it an additional hazard? Why would they take this trouble when they have other people to do the work? ( India isn’t the only country that is good for outsourcing )
- As a consequence of the above, some of the clients would move out – especially because they have tons of freelancers in countries like Philippines and Vietnam waiting to do similar work at an even lesser cost.
- At least a few millions Indians earn their bread as freelancers and some more employed with really small IT setups that are currently using PayPal. As this problem takes a toll on the number of clients who outsource work to India, many of these people would be effected – lose their clients, resulting in lesser income or going jobless ( as if we don’t have enough of them already )
- Lesser work coming to India with same number ( rather increasing) number of freelancers would mean a higher competition, resulting in even cheaper rates and lower quality of work offered by freelancers, earning Indian freelancers an even worse reputation.
And for those who are touting PayPal alternatives, I can say from firsthand experience, none of these alternatives have half the credibility that PayPal has and so most international clients would think ten times before using them.
While I am not even close to being called knowledgeable about banking regulations or economic reforms, after being in the industry for almost 9 years now and being working with International client for more than 5 years I have some understanding of how business works. Unfortunately I don’t see any positive impact of these regulations on the Indian freelancer community and the innumerous small businesses that are cumulatively earning at least a few million dollars every year for the country.
Isn’t it time we look back at our rule books that are way outdated and rather than putting more and more restrictions try doing things that help these people grow their business, earn more money for themselves ( I believe that adds to the country’s economy also).
Frustrated !!!!
why don’t you (you and other freelancers) send a letter concerning this issue to your presifdent / government? maybe they are more open-minded than you think 🙂
http://solidusin.wordpress.com/
Reserve Bank of India: Another puppet of corrupt government of India
(The new rule killing entrepreneurship and a black act to collect taxes for corrupt & starving politicians)
Read below:
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Upcoming changes to PayPal User Agreement for India with effect from 1 March 2011
With effect from 1 March 2011, Paypal Users are required to comply with the requirements set out in the notification of the Reserve Bank of India governing the processing and settlement of export-related receipts facilitated by online payment gateways (“RBI Guidelines”). In order to comply with the RBI Guidelines, Paypal user agreement in India will be amended for the following services as follows:
1. Any balance in and all future payments into your PayPal account may not be used to buy goods or services and must be transferred to your bank account in India within 7 days from the receipt of confirmation from the buyer in respect of the goods or services; and
2. Export-related payments for goods and services into your PayPal account may not exceed US$500 per transaction. We seek your understanding as we continue to employ our best efforts to comply with the RBI Guidelines in a timely manner
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The impact of the above will be as follows:
1. More transactions between Paypal and Bank Account levying more transaction fees on the account holders
2. Increased cost of selling or buying services
3. Disallowing small entrepreneurs taking project assignments worth more than $500
4. Will result in delay in receiving and sending payments
5. Will hinder the growth of IT industry and entrepreneurs of India
6. Will mount unemployment among already struggling professionals
It is apparent from the above that this rule has been specifically brought in effect to benefit corrupt politicians, governance and large companies
Whether you are a service provider, freelancer or a small entrepreneur, you must strongly oppose and protest this black rule
This blog post is also being sent to RBI, Banking Ombudsman, Ministry of Finance, Supreme Court of India
मेरी नज़रों में यह सिस्टम एक चर्बी वाला कारतूस है और मैं इसे मुंह लगाने से इन्कार करता हूँ
इधर जंगल का कानून चलता है …
हर ताक़तवर अपने से कम को मारकर जीता है… मारकर
Being an India citizen by birth and living in this country for 31 years, I am sure that understanding the concept of “online wallet” is a far fetched thing for RBI. I would consider myself lucky in fact, if I can see RBI understanding and allowing this concept before I die. And about Paypal, why would they want to take up the extra burden specially when parallel markets for small IT firms and freelancers are coming up fast in other countries (which somehow happen to be less developed than India, but way ahead in thoughts and planning). I personally feel it is indeed a very good opportunity for countries like Vietnam and specially Philippines to start taking over a lion share of the Indian freelance market.
However, as the owner of a small IT firm, I think it is now in our hands to rather think of an alternative. A Paypal alternative, no matter how credible it is, would surely follow the same path and get in the same soup soon enough as more and more people start using it. Rather we need to find out an option in Wire Transfer or maybe have an online payment option through services like CC Avenue on our websites. The latter definitely is an expensive solution, but it is more likely to get through these RBI regulations since it works with CC and Indian Banks. Maybe we are just looking at a little more capital investment and little more break-even period. No matter what, hindrance to the growth is inevitable. We just need to reduce it as much as possible.
Hi,
I just wanted you to share this petition with you entrepreneurs, Bloggers & Freelancers. http://t.co/oswM2Cl
Please support us and help us spread the word.
A complete different scenario and new mind set . Wonderful post my friend.
An eye opening and waves flooding post for the thinkers and the action takers
Regards
Green Chillies Web Solutions Pvt Ltd
How I open a paypal account from Kolkata?
Totally agree with you.
There is also another problem that Indian freelancers and small IT firms will face as we can’t hold money for more than 7 days, we have to transfer the money to our bank account and if it less than 7k, paypal will deduct 50 INR for that. This is really frustrating for us, I have even requested paypal not to deduct that addidiontal 50 INR but yet to receive any response.