RBI Vs. PayPal - A Few Million Indian Casualties

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..

1. Payments from PayPal needs to be withdrawn to bank account within 7 days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.
2. 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:

1. 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 )
2. 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.
3. 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 )
4. 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 !!!!