The oh-so-famous upheaval caused by the collapse of Silicon Valley Bank (SVB) in the United States has ignited a critical examination of the motives behind housing Indian startups in foreign jurisdictions. This thought-provoking event has shed light on the compelling need to bring startups back to their roots in India, stimulating a paradigm shift in how we perceive and nurture our homegrown entrepreneurial ventures.
The oh-so-famous upheaval caused by the collapse of Silicon Valley Bank (SVB) in the United States has ignited a critical examination of the motives behind housing Indian startups in foreign jurisdictions. This thought-provoking event has shed light on the compelling need to bring startups back to their roots in India, stimulating a paradigm shift in how we perceive and nurture our homegrown entrepreneurial ventures.
Financial institutions like SVB have displayed audacious investment strategies, such as issuing venture debt – a revolutionary loan form backed by equity warrants rather than conventional assets. These financial innovations, progressive business models, and streamlined regulatory environments have enticed startups to domicile themselves in countries like the US.
As a result, a significant portion of Indian unicorns – approximately 38% – have sought foreign domicile, with almost 20% establishing headquarters outside India. Esteemed names like Meesho, Groww, and Razorpay are among these global trailblazers.
Startups have emerged as the driving force behind India’s economic growth, bridging the gaps left by traditional industries that have historically underinvested in research and development.
As a testament to their potential, India’s digital markets outshine even those of developed economies like the European Union. Therefore, reclaiming our startups can prove transformative, amplifying technology investments and fueling local innovation.
Facilitating the homecoming of these technology pioneers hinges on two critical policy changes. They are, firstly, allowing businesses to redomicile, thereby reestablishing their bases in India, and secondly, permitting foreign direct listing for overseas startups led by resident Indian entrepreneurs, enabling them to list their shares on domestic stock exchanges. These progressive steps are vital to generating local value and facilitating broader retail investor participation in the dynamic technology markets.
India has witnessed a tremendous surge in retail investment capacity over the past decade. In 2023, the country’s securities market cap is at a record-high figure of more than Rs 300 lakh crore in total market capitalization. Moreover, as domestic investors evolve and seek diversification opportunities, specialized technology markets present a compelling avenue.
Furthermore, with a median population age of 28.4 years, India’s youthful demographics amplify the propensity to consume technology products and services. The nation already boasts the world’s second-largest telecom market, with over a billion subscribers, and is fast approaching the billion-internet subscriber mark.
While the current market climate favours the repatriation of Indian startups, significant legal challenges loom on the horizon. Redomiciling hurdles involve high taxes on cross-border transfers of business and capital assets, discouraging foreign investors from supporting the legal relocation of their portfolio companies to their primary market.
Similarly, enabling direct listing for overseas entities necessitates alignment between regulatory bodies such as the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and local tax authorities. Subsequently, legislative changes and comprehensive compliance obligations must be implemented to ensure a smooth transition.
Overcoming the obstacles to the homecoming of Indian tech startups requires shifting from short-term tax policies to a strategic and long-term perspective. Embracing the concept of a ‘Place of Empowering Technology (PoET),’ akin to the internationally recognized Place of Effective Management (PoEM), will enable businesses prioritizing India as a hub for innovation and technology deployment to enjoy tax incentives and other advantages.
Such a PoET approach aligns with the government’s vision of self-reliance and empowers Indian entrepreneurs to safeguard against external shocks like the SVB collapse.
India’s startup ecosystem and technology markets are ripe for reform. However, policymakers must forge consensus and take decisive steps to propel the nation’s businesses and markets toward their global potential.
By enabling the repatriation of Indian startups, we can unlock immense economic gains, foster homegrown innovation, and fortify ourselves against the vulnerabilities exposed by the collapse of overseas institutions like SVB.
Conclusion:
The SVB collapse has awakened a collective realization of the need to nurture Indian startups on home soil. Embracing this transformative shift will invigorate our technology landscape, empowering entrepreneurs and driving sustainable economic growth.
