The Reverse Flip Trend in India

Companies returning headquarters to the homeland.

In recent years, a significant trend has emerged in the Indian corporate landscape known as the "Reverse Flip." This trend involves companies that initially moved their headquarters abroad, predominantly to jurisdictions with favourable tax regimes and regulatory environments, choosing to return their headquarters to India. This article delves into the reasons behind this reverse migration, the benefits companies accrue from this move, and notable examples of such companies.

Understanding the Reverse Flip Trend

Notable Examples

1. PhonePe: Walmart backed PhonePe had completed its reverse flipping from Singapore to India through swap of shares, incurring approximately $1 billion tax payout in India. When PhonePe shifted its domicile from Singapore to India in October 2022, the company was valued at approximately $12 billion (INR 98,400 crore). The move involved significant financial implications, including a substantial tax liability. PhonePe's investors had to pay around INR 8,000 crore in capital gains taxes to facilitate the shift. The transition also included migrating all of PhonePe's businesses and subsidiaries, such as its insurance broking and wealth broking services, to India, and implementing a new Employee Stock Ownership Plan (ESOP) for over 3,000 employees under the new Indian entity.
2. Pepperfry: Pepperfry, an online furniture and home decor company, has shifted its domicile back to India from Singapore. Companies like Pepperfry see benefits in operational efficiencies and better alignment with local market dynamics.
3. Groww: The fintech startup Groww moved its domicile from the USA back to India in March 2024. At the time of the shift, Groww was valued at approximately $3 billion (INR 24,600 crore). The move was driven by the desire to align with Indian regulatory requirements and benefit from the supportive ecosystem for fintech companies in India.
4. Pine Labs: Pine Labs has taken significant steps to shift its domicile from Singapore to India. The company has received approval from a Singapore court to merge its Singapore entity, Pine Labs Limited (PLS), with its Indian entity, Pine Labs Private Limited (PLI). The final approval from India's National Company Law Tribunal (NCLT) is still pending.
5. RazorPay: Razorpay is in the process of shifting its headquarters from the United States to India. The company anticipates a tax liability of $250-300 million (INR 2,050-2,460 crore) in the US due to this shift. Razorpay was valued at $7.5 billion (INR 61,500 crore) during its Series F funding round in 2021, but the company might pursue the move at a lower valuation to manage tax obligations.
6. Freshworks: Freshworks, a Chennai-based SaaS company, initially flipped its headquarters to the United States to benefit from the favourable startup ecosystem in Silicon Valley. However, it recently announced its decision to re-establish its headquarters in India, citing the country's improved business environment and robust support for the technology sector. The valuation considered for this shift ranges between $3 billion to $4 billion (INR 24,600 crore to INR 32,800 crore).
7. Flipkart: One of India's largest e-commerce platforms, Flipkart, initially domiciled its holding company in Singapore. Recently, the company has been focusing more on its operations and growth strategies in India, reflecting a potential shift in its headquarters strategy. Currently, Flipkart's valuation is around $33 billion (INR 271,700 crore), following a $600 million funding round from existing backers in December 2023.

Reasons for the Reverse Flip

Several factors contribute to the growing Reverse Flip trend among Indian companies:

• Strong economic growth: The Indian economy recorded a robust growth rate of 8.2% for the fiscal year ending March 2024 cementing the country's position as the fastest-growing major economy in the world. This growth rate marks a significant increase from the previous year's growth rate of 7.0% for the fiscal year 2022-23. The strong economic performance was driven by several factors, including improvements in the manufacturing and mining sectors, increased government capital expenditure, and rising private investments.
• Improved funding: India has become an attractive destination for FDI in recent years, influenced by several factors which have boosted FDI. According to the RBI data, the net FDI flows in India for FY24 were US$ 10.58 billion. Of the US$ 70.9 billion gross FDI inflows in the country, US$ 44.4 billion was repatriated through dividends, share sale or disinvestment, while US$15.96 billion was invested overseas by the Indians. As of 2023, India has over 1,200 registered Alternative Investment Funds (AIFs). This sector has seen remarkable growth, with commitments rising from INR 6.41 trillion in the fiscal year 2021-22 to INR 8.33 trillion in 2022-23.
• Ease of doing business: India is currently ranked 63rd in the World Bank’s Ease of Doing Business Report, as per the latest available data. This ranking reflects the country's significant improvement over the years, climbing from 142nd place in 2014 to 63rd in 2019 before the World Bank discontinued the Doing Business Report. India ranked 40th in the World Competitive Index 2023 jumping 3 positions from the 43rd rank in 2021. India was also named as the 48th most innovative country among the top 50 countries, securing 40th position out of 132 economies in the Global Innovation Index 2023.
• Improved Regulatory Environment: The Indian government has undertaken significant reforms to improve the ease of doing business in the country. Initiatives like the Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), and the simplification of compliance procedures have made India a more attractive destination for businesses.
• Incentives and Support for Startups: The Indian government has launched various schemes and incentives to support startups, such as the Startup India initiative, which provides tax benefits, funding support, and easier compliance norms. These measures have encouraged many companies to reconsider India as a viable headquarters location.
• Access to a Large Market: India offers a vast and growing consumer market, which is increasingly becoming a focal point for businesses. Companies are recognizing the benefits of being closer to their primary customer base, which can lead to better market insights and quicker response times.
• Cost Advantages: Operating costs in India, including labor and real estate, are relatively lower compared to many Western countries. This cost efficiency can significantly impact a company's profitability and scalability.
• Strengthening Infrastructure: India's infrastructure, particularly in technology and telecommunications, has seen substantial improvements. Enhanced connectivity, data centers, and a growing talent pool of IT professionals make India a favorable destination for tech companies.
• Government Policies Favouring Domestic Growth: Policies aimed at promoting domestic manufacturing and self-reliance, such as the "Make in India" initiative, have incentivized companies to base their operations within the country. The Economic Survey of 2022-23 acknowledged the concept of reverse flipping and has listed possible measures such as simplifying the taxation of ESOPs, facilitating improved collaboration and partnerships with established private entities, capital flows and reducing layers of tax to accelerate the reverse flipping process.

Benefits of Returning Headquarters to India

• Closer Proximity to Key Markets: India, which is one of the fastest-growing consumer markets, is poised to become 3rd largest consumer market with consumption expected to reach USD 6 trillion by 2030 (at present USD 1.5 trillion). With headquarters in India, companies can be more agile and responsive to the needs and preferences of the Indian market, which is one of the fastest-growing economies globally.
• Regulatory and Tax Benefits: Companies can take advantage of various tax incentives and regulatory relaxations offered by the Indian government to encourage domestic business operations.
• Talent Pool Access: India is home to a vast pool of skilled professionals, particularly in the fields of technology, engineering, and management. Relocating headquarters to India provides companies with direct access to this talent. The employable talent in India is projected to be a little over 51%, a slight increase from the previous year.
• Cost Efficiency: Lower operational costs in India can lead to significant savings, enhancing the overall profitability of businesses.
• Enhanced Brand Perception: Companies headquartered in India can benefit from a positive brand perception among Indian consumers, who may view them as more committed to the domestic market.

Conclusion

The Reverse Flip trend signifies a positive shift in India's business environment and highlights the country's growing attractiveness as a global business hub. As more companies consider relocating their headquarters back to India, the nation stands to benefit from increased economic activity, job creation, and innovation. The Indian government’s continuous efforts to enhance the ease of doing business and provide supportive policies will likely further fuel this trend, positioning India as a formidable player in the global corporate arena.

Read more: The Reverse Flip Gambit: Legal and Tax Manoeuvres for Indian Startups Coming Home | Lakshmikumaran & Sridharan Attorneys (lakshmisri.com)

Reference Links:

Foreign Direct Investment (FDI) in India, FDI Inflows | IBEF

Razorpay Considers Strategic Headquarters Shift to India via Cross-Country Merger (startuparticle.com)

Financial services startup Groww moves domicile to India from the US | Start Ups - Business Standard (business-standard.com)

Flipkart targets to shift domicile from Singapore to India (entrackr.com)

AIF (Alternative Investment Funds) in India - Framework, Types Taxability for 2024 - Treelife

How India will consume in 2030: 10 mega trends | World Economic Forum (weforum.org)

?Disclaimer: The content provided in this article is intended solely for educational and informational purposes. The information contained herein is based on publicly available data, research, and the author's analysis as of the date of publication. While efforts have been made to ensure the accuracy and reliability of the information, the author makes no representations or warranties, express or implied, regarding the completeness, accuracy, or suitability of the information for any particular purpose.

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