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IFSC at GIFT City: India’s way forward to set up an International Financial Service Centre

GIFT city

2021 kickstarted with a great news for Indian economy as International Financial Services Centres Authority (IFSCA) became an associate member of the International Organization of Securities Commissions (IOSCO).

The Government of India established International Financial Services Centres Authority in April 2020 under the International Financial Services Centres Authority Act passed by the Indian Parliament.

For the first time, the regulatory powers of four financial services regulators in India, namely, Reserve Bank of India (RBI), Securities & Exchange Board of India (SEBI), Insurance Regulatory Development Authority of India (IRDAI), Pension Fund Regulatory Development Authority of India (PFRDAI), have been vested in IFSCA with respect to regulation of financial institutions, financial services and financial products in the IFSC, making it a unified regulator for the International Financial Services Centre in India.

Approved by Government of India as an International Financial Services Centre (IFSC) at GIFT City, the IFSC reinforces India’s strategic position as a global hub for financial services. Apart from providing a global financial platform, it provides easy access to the Indian economy, which is amongst the largest and fastest growing economies in the world and connects ~30 Mn strong Indian diaspora globally to India through the IFSC.

International Financial Service Centers or Offshore Financial Centers are financial centers that cater to customers outside their own jurisdiction. IMF defines an IFC or OFC as, amongst the many definitions of Offshore Financial Centres (OFCs), perhaps the most practical characterizes OFCs as centres where the bulk of financial sector transactions on both sides of the balance sheets are with individuals or companies that are not residents of OFCs, where the transactions are initiated elsewhere, and where the majority of the institutions involved are controlled by non-residents.

An IFSC is, thus, a jurisdiction that provides world class financial services to non-residents and residents, to the extent permissible under the current regulations, in a currency other than the domestic currency (Indian Rupee) of the location where the IFSC is located. Financial institution being a branch or entity in IFSC deemed as a ‘person resident outside India’ for exchange control purposes.

The IFSC at GIFT city in Gujarat is buzzing with business activities ever since its establishment. Today, there are so many players which have set up a shop in India’s Financial Service Center and carrying out banking, insurance and capital markets activities. With the announcement of IFSCA Banking Regulations, any Indian or foreign bank can apply to set up banking unit in GIFT city as per the guidelines and in no time, 13 banks have already established their operations from IFSC.

On the capital markets front, India’s first international exchange in International Financial Services Centre, India International Exchange was inaugurated by Hon’ble Prime Minister of India Narendra Modi on Jan 09, 2017 and commenced its operations from Jan 16, 2017. Operating on an advanced technology platform of EUREX T7, the exchange is the fastest in the world with a turn-around time of 4 micro-seconds. The exchange offers a first of its kind single segment approach for all asset classes - equities, currencies, commodities, fixed income securities providing significant cost advantages to participants. In November 2020, India INX also signed a MoU with Luxembourg Stock Exchange for development and promotion of ESG and green finance in the local market. A month later on 9th December 2020, Dr Reddy’s Laboratories became the first company to list American Depository Receipts (ADRs) on NSE’s GIFT Trading platform. 

Ministry of Finance under the IFSCA 2019 Act has notified aircraft leasing as a financial product which opens plethora of opportunities in aircraft leasing and financing space. Presently, a large chunk of aircraft financing is done from Ireland and IFSC aims to provide these services to Indian airlines from financial institutions based out of GIFT City. Similarly, the IFSCA (Bullion Exchange) Regulations, 2020 have been notified in the official gazette on December 11, 2020 which would enable the setting up of India’s first International Bullion Spot Exchange. Relaxations have been provided as per SEBI norms to alternative investment funds on leverage and investment front to set up operations from GIFT City. To promote a culture of innovation, regulatory sandbox framework has been introduced. Under this sandbox framework, entities operating in the capital market, banking, insurance and financial services space shall be granted certain facilities and flexibilities to experiment with FinTech solutions in a live environment with a limited set of real customers for a limited time frame. 

To add to this, there are plenty of other tax benefits available to entities set up at IFSCA which include-

•    100% Tax Exemption (for 10 out of 15 years)
•    9% Minimum Alternate Tax (MAT)
•    0% Security Transaction Tax (STT) /Commodity Transaction Tax (CTT)     
•    0% Capital Gains Tax
•    0 % Stamp Duty
•    0% Goods & Service Tax (GST)

The government of India and all the regulators have been working together to make GIFT City one of the leading international financial centres at par with London, New York, Hong Kong, Singapore and Dubai. The time is now ripe for all financial institutions to set up a base and enhance the capital flows through GIFT City.  IFSC at GIFT ticks all boxes of building blocks of an IFSC in terms of infrastructure, regulatory environment, sustainable local economy, quality of life and strategic location. The state-of-the-art infrastructure development at GIFT City has won several awards and accolades at various forums. The infrastructure developed in GIFT City, such as District Cooling System (DCS), Automated Waste Collection System (AWCS), Water Treatment Plant, Underground Utility Tunnel, contribute to making of the city a leading smart city.

The GIFT city is ranked 1st in the recent report published by the Global Financial Centres Index 28 - London as one of the 15 centres that are likely to become more significant in the next few years.

For more information, please visit https://ifsca.gov.in/Home