IFSCA Forms Committee To Encourage Indian Startups To Relocate To India

The International Financial Services Centres Authority (IFSCA) has reportedly formed a committee that will encourage Indian startups to redomicile to India and set up their base in GIFT City.

The committee, chaired by the former RBI executive director G Padmanabhan, will apprehend the nuances of regulatory, taxation, legal and other areas that are impacting Indian startups. It will also identify measures that will make GIFT City as a preferred location for startups to set up their headquarters, according to a Business Standard report.

Zerodha cofounder Nikhil Kamath, IFSCA executive director Dipesh Shah, Avaana Capital founding partner Anjali Bansal and Groww CEO Lalit Kshere are some of the other committee members.

“Additionally, the committee would also identify challenges and recommend measures for the development of the International Innovation Hub at GIFT IFSC. The committee is expected to submit its recommendations to the IFSCA within three months,” the statement said.

The committee is tasked to ascertain issues that are vital for the development of the GIFT City and help convert it to a global fintech hub. Additionally, it will support emerging fintech companies having a global outlook to set their headquarters in GIFT IFSC. 

Further, the finance ministry recently noted that the domestic startups collectively secured $44 Bn in 2022. 

The ministry added, “Many Indian startups are domiciled outside India, despite having the majority of their market, personnel and founders here. These ‘externalised’ or ‘flipped’ startups constitute a large number of India’s unicorns.”

In January 2022, the Economic Survey shared that several Indian startups have relocated to foreign countries such as the US and Singapore due to the easy corporate regulations and management of hybrid securities, and less restrictions of inflow and outflow of startup capital. 

One of the instances that explicitly speaks of India’s restrictive taxation norms is fintech unicorn PhonePe that shifted domicile from Singapore to India in October last year. While relocating its base to India, PhonePe had paid tax of around INR 8K Cr to the Indian government. 

Earlier, PhonePe CEO Sameer Nigam too shared that 20 such startups were willing to come to India if the Centre eases tax regulations.

As per Inc42 data, out of the 108 unicorns, 20 are based out of India. Of this, 75% have headquarters in the US and a large chunk of them are operating in the SaaS sector.

To discourage redomiciling of startups to foreign nations and stimulate reverse flipping of domestic startups, the Economic Survey made some recommendations to the Centre such as easing the process of granting ‘inter-ministerial board (IMB) certification’ to startups, simplifying of taxation of ESOPs and minimising friction by easing various layers of tax and ‘uncertainty related to tax litigation’.

We earlier analysed how the SVB Collapse could push the Indian government to make room for reverse flipping strategy for Indian startups. We pointed out how the Indian government and the RBI will make regulations for an improvised ‘ease of doing business’ policy, with special focus on banking norms and taxation related to capital flows for Indian startups. Here, the IFSCA forming a committee hinting us to that direction only.