Startups and big businesses will have to pay anywhere between Rs 5 lakh and Rs 40 lakh to test disruptive technologies in a controlled environment as Karnataka has notified draft rules governing the operation of the regulatory sandboxes.
The regulatory sandbox is a key feature of the Karnataka Innovation Authority (KIA), which the government claims, is India’s first pan-sector initiative that is expected to see private companies testing innovations that are currently unregulated under law.
Sandboxes will provide regulatory exemption for disruptive technologies to be tested for a year, which can be extended by one more year.
Sandboxes will be established in two ways: One, based on an application the KIA receives from innovators seeking a sandbox, which it will decide upon within 59 days after determining the feasibility through a public consultation; two, the KIA itself setting up a sandbox suo motu, again via public consultation.
The government has also proposed that private entities can be selected as sandbox operators. However, only those private entities having a registered office in Karnataka and have been in existence for three years with the ability to provide an effective test environment and the capacity to test a product, service or business will be preferred.
The government hopes that the regulatory sandbox approach will help devise new technologies to deal with contemporary challenges.
Karnataka has had its share of regulatory tussle with disruptive technology. In the transport sector, for instance, carpooling and shuttle services are restricted under the motor vehicles rules.
Companies that seek establishment of a sandbox to test new innovation will have to pay a processing fee (Rs 5 lakh to Rs 40 lakh) based on its paid-up capital. The fee is exclusive of 18% GST. Similarly, the draft rules prescribe a fee for companies to participate in a sandbox already established based on paid-up capital. The participation fee ranges from Rs 20,000 to Rs 4 lakh, excluding 18% GST.
Government agencies seeking to set up a sandbox do not have to pay any fee.
It was widely believed that the first regulatory sandbox was the Financial Control Authority the UK established in 2015 for the fintech space. The Reserve Bank of India, SEBI and Maharashtra government have also set up regulatory sandboxes to boost fintech.