Many Indian startups like PhonePe, Groww, and Flipkart have started returning to India. These firms moved abroad earlier for regulatory reasons but now see value in listing on domestic stock markets. In September 2024, the government introduced a fast-track merger route to help these companies return home more easily today.
In the previous column, we discussed how several successful Indian startups domicile themselves in Singapore, the US or other countries as a practical solution to regulatory challenges. Interestingly, the traffic has started reversing. PhonePe, Groww, Zepto, Pine Labs and Flipkart are among the startups that have returned to India, albeit at considerable effort and high cost. So, why are they doing it?
The biggest reason is India’s capital markets. A decade ago, an ambitious Indian startup often looked towards Nasdaq for an IPO. Today, the domestic stock markets have demonstrated a growing appetite for technology companies. Zomato, Nykaa, Policybazaar, FirstCry, Mamaearth and Swiggy have shown that Indian investors are willing to back new-age businesses, even if profitability is some distance away.
For startups with predominantly Indian customers, revenue and operations, listing at home makes sense. Moreover, Indian investors understand Indian businesses. A company built around UPI, digital commerce in India or the country’s growing consumption economy may find it easier to explain its business model to domestic investors than fund managers sitting thousands of miles away. This familiarity could also translate into more appropriate valuations. Domestic capital has also grown, and Indian family offices and institutional investors are increasingly comfortable with technology businesses.
Regulatory changes have helped. India’s evolving cross-border merger framework has made certain restructuring transactions easier, while the removal of angel tax and other startup-friendly measures have improved the investment environment. In September 2024, the government also introduced a fast-track merger route for eligible foreign holding companies merging into their wholly owned Indian subsidiaries, eliminating the need for NCLT approval in such cases.
However, the homecoming isn’t cheap. Reverse flipping involves restructuring ownership, regulatory approvals, transferring shareholdings and complex tax implications. Yet companies have decided that the long-term benefits justify the expense.
There is a lesson here. Founders made practical business decisions to move abroad, not because they were unpatriotic. They are now making equally rational business decisions to return to India.
This is all good news, but challenges remain. It is essential we keep plugging regulatory gaps and reforming the business environment to make it easier for startups. Besides, not every Indian startup needs to be legally Indian.
An SaaS or AI company deriving most of its revenues from American customers may remain domiciled in the US. We must make this distinction, and not treat every overseas incorporation as a loss for India.
India’s real achievement will be not in persuading startups to come back, but creating an environment where future founders never feel the need to leave in the first place.
(The writer is a serial entrepreneur and best-selling author of the book ‘Failing to Succeed’; posts on X @vaitheek)