Why are start-ups moving out of India

Seeking a better business environment, start-ups are taking flight

Just days after the Indian Prime Minister Narenda Modi wooed investors and the who’s who of Silicon Valley to India through his ‘Digital India’ and ‘Make in India’ campaigns, German Chancellor Angela Merkel who was in Bengaluru called India, the Silicon Valley of Asia. The comparison is definitely not new but it certainly rings hollow. While India boasts of around 3,100 start-ups at the last count done by Nasscom early this year, Israel with a population of 8 million has start-ups double that number and is often the favourite hunting ground for Valley investors. While start-ups have never been more in fashion, there are several factors that are driving start-ups from India to Singapore, US and London in search of a better business environment and friendlier regulations.

The latest to join the list is online grocery delivery start-up, Grofers, that has moved to Singapore. The Sequoia-funded firm is creating a holding company called Grofers International, which would be based out of Singapore and hold the assets of its Indian arm, much like Flipkart. The Grofers co-founder claims that the move was with an eye on a future international listing and a possible restructuring which is easier to execute out of Singapore. A lot of companies such as Knowlarity, Flipkart, InMobi, Mobikon, Adnear and Ezetap had to re-domicile to Singapore due to regulatory restrictions, a better tax structure or sometimes just the need to raise money since some investors were not comfortable investing in India. In Singapore, the corporate tax rate is around 17-19% compared to a steep 30% in India  plus there are tax breaks on initial revenues and investments on intellectual property in addition to giving cash bonuses and pay-outs to cover initial costs.

While in some cases like Druva, Unbxd and Freshdesk the move to the US has been driven by the need to be closer to the customers, some of the start-ups such as Knowlarity, Ezetap and Deck have moved because of investors who were more comfortable investing in companies that were domiciled out of India. According to iSPIRT, around nine out of the top 30 product companies have already moved out of India to these countries and the exodus will continue till the ease of doing business in India improves. While old school entrepreneurs have similar complaints, at least technology start-ups in India have the window of opportunity to move overseas thanks to the support of the investors. While Modi goes around hard-selling India to investors and companies across the world, there will be little change on the ground unless there is a better business environment and enabling regulation. Status quo continuing, 'Make in India' and 'Digital India' will remain just buzzwords.