Razorpay, a Bengaluru-based digital payments startup, is apparently intending to relocate its parent corporation from the United States to India, months after PhonePe relocated its parent company from Singapore to India.
A person with knowledge of the situation told ET that the fintech startup has already initiated the process of reverse flipping. The corporation has begun the first stage of the procedure to return its parent organization to India. Despite the capital-intensive nature of the procedure, Razorpay’s management and board are claimed to be enthusiastic about the move.
How capital-intensive is it? To put this in context, PhonePe had to pay close to $1 billion in taxes to the Indian government before relocating its headquarters to India.
Razorpay is also claimed to be considering an IPO in India, however sources quoted by ET stated that an IPO was not a priority.
The fintech unicorn’s domicile is in the United States since Y Combinator requires startups to relocate when seeking investment from an incubator.
Razorpay was the second Indian firm to get accepted into Y Combinator in 2015, around when the incubator began to look at Indian startups. Cashfree, another YC-backed payments startup with a parent company in the United States, is in a similar situation.
Razorpay, founded in 2014 and presently valued at $7.5 billion, is in a precarious position as it awaits a final judgement on its application for a payment aggregator licence with the Reserve Bank of India (RBI). The RBI has also prevented the company from accepting new merchants till the latter grants a licence.
The move comes as India has formed an expert committee to recommend policies to attract local businesses based in other countries to migrate to Gujarat International Finance Tec-City’s International Financial Services Centre (GIFT-IFSC).
Razorpay’s concept also follows the 2022-23 Economic Survey’s recommendation of a multi-step method to allow startup reverse flipping.
Reverse Flipping To Pick Up Steam?
Measures such as simplifying the process for granting “inter-ministerial board (IMB) certification” for startups, simplifying the taxation of employee stock options (ESOPs), and reducing friction by simplifying the “multiple layers of tax and uncertainty due to tax litigation” are among the six steps presented in the Economic Survey 2022-23.
The report also suggests relaxing capital-flow processes, citing the examples of countries such as the United States and Singapore, which “have easier corporate laws, with fewer restrictions on the inflow and outflow of capital and the treatment of hybrid securities.”
With PhonePe and Razorpay returning to India, it will be fascinating to observe how other entrepreneurs based in other countries see returning to India. According to Inc42 data, 20 of the 108 unicorns in India are located outside of India, with over 75% of them being enterprise tech businesses.
With incidents such as the failure of the Silicon Valley Bank and stricter restrictions in the United States, more businesses may be enticed to return to India.