Of late, the term ‘Reverse flipping’ is used in business circles. Basically, it is a term used to describe the trend of overseas start-ups shifting their domicile to India and listing on Indian stock exchanges. This trend has been gaining traction in the recent years, as start-ups look to capitalise on India’s large and growing economy, access to deeper pools of venture capital, favourable tax regimes, better intellectual property protection, young and educated population, and favourable government policies. Let us discuss the same in detail.

India is the world’s fifth-largest economy by GDP and is expected to become the third-largest economy by 2030. This growth is being driven by several factors, including a young and growing population, rising urbanisation, and increasing disposable income. This presents a significant opportunity for overseas start-ups looking to expand into new markets.

Further, according to International Labour Organization (ILO) reports India has the world’s largest youth population, with 66 per cent of the population under the age of 35. This young population is also well educated which makes India an attractive market for overseas start-ups looking for a skilled and talented workforce. The Indian capital market provides overseas start-ups with access to a large pool of capital.

Owing to the enhanced corporate governance norms, investors are now confident that the companies in which they invest are well-managed and transparent.

The listing process on the Indian stock exchanges is relatively cost-effective compared to many of the Western exchanges. This makes it an attractive option for overseas start-ups with limited resources. Another significant upsides is the opportunity to tap into the growing Indian consumer market.

Additionally, overseas start-ups can find synergies with Indian companies. This can lead to partnerships, joint ventures, and acquisitions which in turn help the overseas start-ups to expand their reach and operations in India.

Many overseas start-ups have brand recognition and goodwill in India which is a competitive advantage over Indian start-ups. Moreover, the Indian government has been supportive of start-up eco system in recent years, introducing a number of policies to promote innovation and entrepreneurship, including tax breaks, funding assistance, and regulatory reforms.

The way forward

The Economic Survey 2022-23 recognised the concept of reverse flipping and proposed ways to accelerate the process, such as simplifying the processes for tax vacations, taxation of ESOPs, capital movements, decreasing tax layers and the like.

However, structuring a reverse flip is not easy and start-ups considering this reverse journey have to navigate a maze of regulations. Further, start-ups also need to navigate the exchange control regulations while repatriating funds or assets to India, ensuring all compliances are met. Another important development is that the International Financial Services Centres Authority (IFSCA) formed an expert committee to develop a plan for ‘Onshore the Indian Innovation to GIFT IFSC’.

In August, the committee published its report, which proposed measures to be implemented by various stakeholders such as ministries and regulatory authorities in implementing the idea of onshoring Indian innovation to GIFT IFSC. By doing so, the IFSCA intends to make GIFT City the preferable destination for start-ups to reverse flip into.

The trend of reverse flipping is likely to continue in the coming years, as more and more overseas start-ups look to capitalise on India’s growth potential which is good for the Indian economy, as it will help to bring in new investment and create jobs.

Saravanan is a professor of finance and accounting at IIM Tiruchirappalli and Williams is an analyst at Sernova Financial