Syllabus
GS Paper 3 – Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth.
Context
The Economic Survey 2023-24 recognized the concept of reverse flipping, a trend that has been garnering increased attention in recent years.
What is Flipping?
- Flipping refers to the transfer of full ownership of an Indian company to an overseas entity, including intellectual property and data.
- This process results in the Indian company becoming a 100% subsidiary of the foreign entity, allowing founders and investors to retain ownership through exchanged shares.
- The Reserve Bank of India, as outlined in the Foreign Exchange Management (Overseas Investment) Rules and Regulations of 2022, acknowledges the existence of the flipping culture.
What are the reasons for flipping?
- Taxation benefits
- Ease of setting up in places like Singapore, the US
- Ease of attracting foreign capital
What is Reverse flipping?
- It is the trend of overseas start-ups shifting their domicile to India and listing on Indian stock exchanges.
What are the reasons for reverse flipping to India?
- India’s favourable economic policies (tax breaks, funding assistance)
- Expanding domestic market
- Growing investor confidence in the country’s start-up ecosystem
- Institutional support (International Financial Services Centres Authority (IFSCA) has constituted an expert committee to formulate a roadmap to ‘Onshore the Indian innovation to GIFT IFSC’)
What level of importance does the reverse flipping scenario hold for India?
- India’s Appeal as a Global Startup Hub: Reverse flipping reflects confidence in India’s potential as a thriving global start-up hub.
- Advantages Contributing to Reverse Flipping: Access to deeper pools of venture capital, favorable tax regimes, robust intellectual property protection, and beneficial government policies contribute to the phenomenon of reverse flipping.
- India’s Economic Position and Market Potential: With India positioned as the world’s 5th largest economy by GDP and anticipated to become the 3rd largest by 2030, this presents a significant opportunity for overseas start-ups aiming to expand into a new market.
- India’s Skilled Workforce and Demographics: India boasts the world’s largest youth population, with 66% under the age of 35, making it an appealing market for a skilled workforce, as highlighted by the ILO.
- Cost-effective Listing Process and Corporate Governance: The cost-effective nature of the listing process on the Indian stock exchange makes it an attractive option for overseas start-ups with limited resources, enhancing effective corporate governance.
- Access to the Growing Indian Consumer Market: Overseas start-ups, leveraging brand recognition and goodwill in India, gain a competitive edge over Indian start-ups, tapping into the expanding consumer market in the country.
- Opportunities for Expansion through Collaborations: Partnerships, joint ventures, and acquisitions with Indian companies create synergies for overseas start-ups, facilitating their expansion and reach in India.
What strategies can be implemented to expedite the process of reverse flipping?
- Taxation Streamlining and Reduction of Uncertainty: Simplification of intricate tax layers and addressing uncertainties arising from tax litigation.
- Streamlining Capital Flow Processes: Enhancing procedures related to the movement of capital to make them more straightforward and efficient.
- Lenient Corporate Laws and Capital Movements: Highlighting countries like the US and Singapore as examples with more relaxed corporate laws, allowing smoother inflow and outflow of capital.
- Fostering Partnerships with Private Entities for Start-Up Growth: Enhancing collaboration with private entities to establish superior practices and advanced mentorship platforms for startups.
- Exploration of Funding in Emerging Fields for Start-ups: Investigating the funding and nurturing landscape for start-ups in growing sectors like social innovation and impact investment.
Source: The Hindu
Practice Question
Analyse the impact and implications of both ‘flipping’ and ‘reverse flipping’ practices on India’s economy, entrepreneurship, and global competitiveness. Also, discuss the strategic measures and policy frameworks required to harness and facilitate the phenomenon of ‘reverse flipping’ for sustainable growth and innovation in the Indian start-up ecosystem. (Answer in 250 words)