Editorial – October 2023

India’s startup ecosystem is a stellar success story globally, on various parameters –traction in different sectors, the level of funding it has attracted and its finance raising ability in recent years. However, alongside these promising facts certain troubling trends of flight came to light, namely Indian startups externalizing or flipping to overseas jurisdiction. Further, earlier this year when it became known that Fintech unicorn PhonePe had to pay withholding taxes of Rs 8,000 crore on behalf of its investors on account of relocation back to India, it started a debate about relocation regulations being regressive and how this if unaddressed would lead to flight of innovation and entrepreneurial brain drain. PhonePe relocated because it was eyeing businesses in India’s growing UPI payments, wealth management and insurance products. Following this, other startups also began exploring ‘reverse-flipping’ or shifting their domicile back to India. The Economic survey 2023 too reported on this shifting trend.

Therefore, the government set up a committee to examine the issue of reverse flipping in all its dimensions and make recommendations. The report was recently submitted to the International Financial Services Centres Authority (IFSCA).

Among its progressive major recommendations, one has been making the International Financial Services Centres (IFSC) in Gujarat International Finance Tech City popularly known as GIFT City, the first destination of choice for such Indian Startups. This is India’s maiden IFSC and first fully operational greenfield Smart City. It has been operational for three years and has seen significant momentum across fintech verticals, the number of registered entities reflect a growth of over 300 per cent.

GIFT IFSC has been purposed as a distinct international financial jurisdiction to onshore the offshore international financial services business and act as a gateway for global capital inflows into and out of the country. The vision of the government is to develop GIFT IFSC as a leading internationally recognized global financial centre with trusted business regulations, competitive tax structure and focus on ease of doing business.

Also in the cover story, read about relevant stats on startups, the impact of flipping on the Indian economy, and all details of reverse flipping recommendations covering company law, taxation, listing on IFSC exchanges and other matters.