Razorpay, Groww & more: Why startups want to shift base to India

Many Indian startups that ventured abroad have been mulling shifting back home for some time now. Walmart-owned fintech firm PhonePe moved its domicile from Singapore to India in September 2022. Several other startups, including Razorpay and Groww, are considering moving their parent entity to India. What’s the reason behind this? Let’s take a closer look. Razorpay As per an Economic Times (ET) report, digital payments firm Razorpay has started working on “flipping” back to India from the United States. Flipping means when a company domicile outside their home country. Reverse flipping refers to the country shifting its base back to its home country. The Bengaluru-headquartered firm Razorpay is valued at $7.5 billion. It had to shift domicile to the US for raising funds from Y Combinator. A person familiar with the development told ET in May last year, “They have kicked off the first stage of a multi-layered process to bring its parent entity back to India. It will take time and a good amount of funds, but the management and board are keen on it. This makes sense in a highly regulated sector like financial services”. The person, who wanted to be anonymous, said that once the parent entity of Razorpay is back in India, the payments firm could start looking at a potential IPO (initial public offering) listing. As per another ET report, the reverse flip could involve a tax payment of $250-300 million in the US. However, last September, Rahul Kothari, Razorpay ’s Chief Business Officer, told Financial Express that the firm did not have immediate plans to reverse flip. “A lot of these discussions happen from a taxation and legal perspective. Some of those options are there but there is nothing concrete as of now,” he said. Speaking to Business Today in September, Shashank Kumar, founder and managing director of Razorpay, said the company is “bullish” on India’s growing fintech story, including Unified Payments Interface (UPI), neo-banking and credit. “Now businesses are also becoming omni-channel. How can we make that process easy for them, how can we make it simpler as digital commerce proliferates amongst customers? How do you increase trust, that’s going to be a big factor when you go down to tier 2 and 3?” Groww Reports have been doing rounds since May last year that full-stack financial services platform Groww is planning to move its domicile from the US to India. ET reported in November last year that the wealth management firm applied to the National Company Law Tribunal (NCLT) earlier, seeking a cross-country merger between Indian arm Billionbrains Garage Ventures and US holding firm Groww Inc. [caption id=“attachment_13568372” align=“alignnone” width=“640”] Groww is planning to move its domicile from the US to India. Image Courtesy: Moneycontrol File[/caption] Groww was asked to get clearance from the Karnataka tax department, the Reserve Bank of India (RBI) and other sectoral regulators, the report added. Pine Labs and more Payments firm Pine Labs has joined also the list of companies contemplating domiciling in India. Sources told ET that the firm may seek board approval this quarter to move its parent entity from Singapore. After the board gives the nod, the company, which is valued at $5 billion, will work on the required regulatory filings. Speaking to ET in early 2023, Pine Labs chief executive Amrish Rau said, “The decision (of shifting domicile) should not be based on valuations or taxation… It should be on whether the technology built is for global or domestic markets. And that is the discovery that is undergoing with Pine Labs currently. Based on those outcomes, we will decide on the best domicile for the company.” Online shopping platform Meesho and business-to-business (B2B) e-commerce firm Udaan are also reportedly making plans to shift their holding companies back to India. Udaan has decided to go for a public listing in the next year or so, according to ET. ALSO READ: Why Byju’s & Dream 11 is a litmus test for India startup story Why are startups reverse flipping? There are many reasons that startups, especially in the fintech sector, are evaluating shifting their holding company to India from abroad despite facing large tax bills while doing so. As the regulatory environment tightens for fintech, the firms are looking at a homecoming to India. Dhiresh Bansal of Meesho told CNBC in March last year, “There are about 20 plus of the 100 odd unicorns that are currently in India which are incorporated outside. It is a question that we think about which is — does continuing to be incorporated in jurisdictions outside India make more sense or is it time to come back.” “It is quite important to think about this as a very real option,” he added. [caption id=“attachment_13568392” align=“alignnone” width=“640”] Startups are mulling shifting their holding company to India from abroad despite facing large tax bills while doing so. Pixabay (Representational Image)[/caption] According to Jitesh Agarwal, founder of Treelife, a law and finance consultancy, the startup environment has quite “matured” in India. “There is a large pool of untapped domestic retail investors who want to invest in emerging companies they believe have the potential to grow. Additionally, steps taken by the government in recent times are making it easier for start-ups to go public, which could make it more attractive for start-ups to reverse flip,” he wrote for BusinessLine in September 2023. The Centre has reportedly been pushing Indian companies to consider Gujarat’s GIFT City as an alternative to foreign destinations. The International Financial Services Centres Authority (IFSCA) established an expert committee last year to chart a roadmap ‘Onshore the Indian innovation to GIFT IFSC’. It aims to make GIFT City the preferred location for startups to reverse flip into, as per BusinessLine. The Economic Survey 2023 had underscored the need to encourage Indian startups to move their parent entity to India. “The trend of reverse flipping underscores the belief in India’s potential as a global start-up hub. While challenges exist, the long-term benefits of tapping into the domestic market, coupled with the strengthening start-up ecosystem, are compelling many to look homeward,” Agarwal wrote for BusinessLine. With inputs from agencies