INDIAN INNOVATION TO OVERSEAS RULES: IS INDIAN IFSC A SOLUTION?

FLIGHT OF INDIAN INNOVATION TO OVERSEAS JURISDICTION – IS INDIAN IFSC A SOLUTION?

Key Insights

• Startups in India emerge as key force multipliers in India’s pursuit of a USD 10 trillion economy by 2032.
• India’s startup ecosystem has achieved remarkable growth and recognition, while on the other hand, a worrying trend of Indian startup ‘externalising or flipping’ to overseas jurisdiction has also come to the fore.
• IFSC (International Financial Services Centre) has been developed in India which provides the solution for this ‘Flight of Indian Innovation to Overseas Jurisdiction’.
• GIFT City, the only Indian IFSC is an important gateway to connect India with global opportunities and when you integrate with GIFT City, you will integrate with the whole world.

Deep Insight …

Significance of Indian Startup ecosystem

As the best chartered accountant firm in India, we know that startups have emerged as key drivers of economic growth in India. With more than 108 unicorns, and nearly one lakh recognised startups, India constitutes 3rd largest startup ecosystem in the World. Indian startups have attracted funding of about USD 141 billion in last 10 years while USD 66 billion was raised in last 2 years only. With continued impetus, startups should emerge as one of the key force multipliers in India’s pursuit of a USD 10 trillion economy by 2032

Today, Indian entrepreneurial talent is driving the global knowledge economy with cutting edge innovation, value creation and wealth generation. The vibrant startup ecosystem is a shining diamond of India’s technological prowess, entrepreneurial spirit and innovative workforce.

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Flight of Indian Innovation to Overseas Jurisdiction

While on the one hand, India’s startup ecosystem has achieved remarkable growth and recognition, while on the other hand, a worrying trend of Indian startup ‘externalising or flipping’ to overseas jurisdiction has also come to the fore. Externalisation or flipping refers to a process of transferring the entire ownership of an Indian startup entity to an overseas entity, accompanied by transfer of all IP and data hitherto owned by Indian Company.

Key reasons for Externalisation:

• Stronger currency
• Favourable tax regime
• Better IP protection
• Proximity to global investors/capital
• Reduced compliance burden
• Investors influence

Key Impacts of Externalisation:

• Brain drains of entrepreneurial talent from India
• Stalling of innovation and technological advancement within the Country
• Loss of Intellectual property and tax revenue for the Country

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IFSC solving Externalisation (Onshoring the offshore)

“GIFT City (Indian IFSC) is an important gateway to connect India with global opportunities. When you integrate with GIFT City, you will integrate with the whole world.” Shri Narendra Modi, Hon’ble Prime Minister of India

IFSC (International Financial Services Centre) has been developed in India which provides the solution for this ‘Flight of Indian Innovation to Overseas Jurisdiction’ by innovative mechanisms which will not only stop this flight but also reverse the trend by inviting Overseas innovation to Indian jurisdiction. Here are some key services which IFSC in India is providing:

–  Favourable Holding company regime in comparison with other overseas jurisdictions like Singapore, Netherlands and Delaware in Indian IFSC will act as a catalyst, attracting foreign investment and positioning Indian IFSC as the preferred destination for MNCs and enterprising Indian startup to establish their regional and global headquarters in Indian IFSC.

– Establishing friendly regulatory regime by fostering supportive tax and regulatory environment, streamlining bureaucratic processes, automation driven approach, enhancing transparency, ensuring accountability and most importantly the ease of doing business by establishing single regulatory authority blend with multiple regulatory authorities in a single window set up.

– Being an offshore jurisdiction within Country, Indian IFSC offers several advantages to Indian startup community including flexibility of transactions in foreign currencies, hassle movement of capital and investment and access to vibrant and growing PE/VC ecosystem as well as access to world class FinTech Hub.

Indian IFSC is truly providing extra-ordinary services in the rapid economic growth in India. It will not only stop this ‘Flight of Indian Innovation to Overseas Jurisdiction’ but also reverse the trend by inviting Overseas innovation to Indian jurisdiction.