Reverse Flipping

Source-This post on Reverse Flipping is based on the article “Startups ‘reverse flip’: Pine Labs, Zepto, Meesho in queue for India return” published in “Economic Times” on 21st March 2024.

Why in the News?

Startups such as Pine Labs, Zepto, and Meesho are the latest new-age companies looking to move headquarters to India.

About reverse flipping

1. About: Reverse flipping refers to the phenomenon where international startups relocate their headquarters to India and subsequently go public on Indian stock exchanges.

2. Driving factors: It is driven by various factors including India’s thriving economy, expansive market potential, robust venture capital ecosystem, favourable tax frameworks, strong intellectual property protection, educated workforce, and supportive governmental policies.

3. Reason: Companies opt for reverse flipping due to the ease of accessing capital from private equity and venture capital firms, regulatory changes regarding round-tripping, and the increasing maturity of India’s capital markets.

4. Measures to accelerate the process: The Economic Survey 2022-23 suggested measures to expedite the process, such as simplifying procedures for tax incentives, taxation of Employee Stock Ownership Plans (ESOPs), capital movements, reducing tax complexities, among others.

About Flipping

1. About: Flipping is when an Indian company transforms into a 100% subsidiary of a foreign entity, after it has moved its headquarters overseas, including a transfer of its intellectual property (IP) and others.

2. Impact on Indian economy: 

a. Brain drain of entrepreneurial talent from India: Young, skilled, and innovative founders relocate to overseas jurisdictions resulting in loss of human capital and stalling of innovation and technological advancements within the country.

b. It results in value creation in foreign jurisdictions rather than in India:  Home-grown innovative ideas and disruptive technologies contribute to the startup ecosystem and economic growth of other countries.

c. It also results in the loss of Intellectual Property and Tax Revenue for the country.

UPSC Syllabus: Indian Economy