Promoting Innovation in Karnataka
A legal intervention to help remove roadblocks to the application of innovative technology in real life and encourage the growing startup sector in the State of Karnataka.
The city of Bengaluru has long been acknowledged as one of the world’s leading start-up hubs. As of 2018, Bengaluru was home to the third highest number of tech start-ups among all cities in the world. The start-up sector in India has created more than 4 lakh jobs in India overall and added 60,000 in 2019 alone.
Bengaluru, as a leading start-up hub of India, has been at the forefront of both job creation and wealth creation in not just the state of Karnataka but also across India. Despite this, legal barriers have prevented start-ups from applying innovations in their businesses.
The examples of on-demand public transportation and drones illustrate this. Start-ups which sought to bring the on-demand aggregator model to public transport to ease traffic congestion in Bengaluru found that they were in breach of state laws which were used to regulate public transport vehicles. Similarly, companies which sought to use drones to deliver goods in a safe and efficient way found themselves falling afoul of state and central regulation until certain relaxations were created.
This situation was an example of the classic dictum – that the law is always two steps behind technology. Legislation made to address the needs of a different technological paradigm was hindering the further development and use of technology. At the same time, there was a need to identify what could be the best legal framework to regulate new technology in the interests of consumers and the general public. An approach had to be found that would balance the interests of innovators, the general public and the government as the regulating entity. To address this gap, the Vidhi Centre for Legal Policy, Karnataka supported the Karnataka State Government with introducing the Karnataka Innovation Authority from ideation through enactment.
Suggesting the introduction of a regulatory sandbox law for start-ups in Karnataka
In 2018, Vidhi Karnataka came out with its first briefing book on 15 Legal reforms for the State of Karnataka where one of the suggestions made to the State Government was to introduce a regulatory sandbox law for start-ups in the State of Karnataka. It was specifically suggested:
‘To this end, a nodal agency within the Department of Information Technology and Biotechnology (‘DITB’) would be best placed to identify crucial high-technology sectors which may require sandboxed regulation and facilitate the creation of such sandboxes, as well as acting as a single point of contact for multiple firms and independent regulators.’Karnataka briefing book, 2018
Supporting the drafting of the Karnataka Innovation Authority Bill
Subsequent to this, Vidhi Karnataka was approached by the Karnataka State Government to draft an appropriate legislation to create a ‘Karnataka Innovation Authority’, which would oversee the creation of regulatory sandboxes in the state, with a special focus on innovations in the start-up sector in the city of Bengaluru.
An MOU was entered into with the Karnataka Information Technology Society and Vidhi Karnataka provided expert advice to the State Government in drafting the Karnataka Innovation Authority Bill. The Bill was first introduced as an Ordinance before being passed as a law in 2020.
The Bill creates a Karnataka Innovation Authority (KIA) headed by the Chief Minister of the State, which is empowered to set up regulatory sandboxes and appoint sandbox operators to oversee these.
It is also empowered to relax state laws, rules and regulations for creating such regulatory sandboxes and if a sandbox shows an innovation to be effective and useful, it can recommend the amendment and modification of the appropriate laws by the appropriate authority.
‘We’re looking at providing regulatory exemption for a year, which can be extended by one more year. So, innovators will get up to two years to test their products or technologies in a controlled environment. The innovation under the sandbox will be confined to a geographic area. Once it becomes successful, we will have to bring a new law to do away with the regulatory barrier that existed.’Deputy Chief Minister, Karnataka, CN Ashwath Narayan
Continued support on drafting rules and regulations
Subsequent to the passage of the KIA Act, 2020 by the Karnataka State Legislative Assembly, Karnataka has become one of the first states in the country to create a legal mechanism for start-ups to approach the government to seek relaxation and modification of laws in a bid to promote the use of technology. Vidhi is continuing to engage with the Karnataka State Government to draft rules and regulations which will guide the functioning of the KIA.