As the Indian economy marches towards a gross domestic product (GDP) of $5 trillion and beyond, the IFSC in GIFT City is slated to play an important role in enhancing Indian entrepreneurs’ ability to access global capital as well as reaching out for innovative financial products and solutions, enabling rapid integration of domestic business with opportunities around the globe.
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Conceptualised in 2008 and operationalised in 2015, with an aim to “onshore the offshoring of business”, and become a viable alternative to jurisdictions such as Dubai, Singapore and Mauritius, several proactive regulatory and policy initiatives have been implemented since 2019 which have been instrumental in attracting multinational banks, financial services companies, asset management companies, investment managers, alternative funds, insurance companies, stock exchanges, clearing corporations, international bullion exchange, etc. to start operations in IFSC-Gift City.
Apart from entities in the banking and financial service (BFSI) space, family offices, fin-tech companies, bio-tech, leasing companies, engineering, automobile, maritime and even foreign universities are in the process of setting up ventures.
Unified Regulator IFSCA, a single regulator that has subsumed authority from RBI, SEBI, and IRDA, for GIFT City jurisdiction, has enabled a single window clearance for entities as well as regulations that are on par with other jurisdictions.
By establishing an EXIM Bank subsidiary and data embassies, the government aims to increase the ease of doing business and support GIFT City’s potential for growth.
Key initiatives of ISFC GIFT City
Entities registered in GIFT City are considered Non-Residents as per FEMA regulations. Tax holiday for ten consecutive years, no GST, MAT, and relief of filing returns have encouraged entities to set up business in GIFT City.
Several key initiatives have been taken in the recent past, some of which I shall enumerate below to emphasise the growth opportunities for all stakeholders:
1) Start-ups are an integral part of India’s growing economy. A huge talent pool of technocrats has over the last decade attracted over $140 Billion for various ventures. Private Equity and Venture Capital have been playing a pivotal role in funding and encouraging these start-ups.
However, many of these ventures have been “flipping” and setting up bases elsewhere outside the country. Key reasons are the stronger value of currency, favourable tax structure, proximity to investors and reduced compliances etc.
Recently initiated by IFSCA, a committee was formed under the chairmanship of the Former Executive Director, RBI, to go into how “Flipping” could be stopped and IFSC-GIFT City can hasten and reverse the process. Several key recommendations have been given by the committee. Many of these recommendations can be implemented in a time span of short to medium term.
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Some of the key recommendations suggested changes in Company Law and Regulations such as simplified incorporation of holding companies, segregation of investment in IFSC from the overall LRS cap, and an increased limit beyond $250,000/- per annum.
Tax neutrality on relocation, rationalization of tax rates, allowing carried forward losses after relocation beyond a period of 10 years, tax exemption for dividends, angel tax exemption, and setting up special courts in GIFT jurisdiction for speeder arbitration and dispute resolution, advance ruling mechanisms. Faster adoption of these recommendations will go a long way in further enhancing business opportunities in IFSC – GIFT City.
2) In the recent budget, the government allowed acquisition financing by IFSC Banking units. Offshore Derivative Contracts to be recognised as valid contracts.
3) The shifting of index trade from Singapore, the move to allow fractional share investment, and unsponsored depository receipt of US securities are all measures that will deepen the capital markets access from IFSC- GIFT City.
4) Several Indian companies that relied on External Commercial Borrowings and Trade Finance can now hope to raise money at lower costs from IFSC-GIFT city. It is expected that this will encourage industry that substantially depends on the ECB to rely on financing arrangements from the IFSC-GIFT.
5) Many companies are also considering listing their bonds in the GIFT City as the withholding tax charged to lenders for interest earned on foreign currency loans has been waived. Moreover, a lower tax is applicable for interest earned on investments in bonds.
6) In April 2022, IFSCA notified Fund Management regulations. These regulations regulate the Fund Manager. The regulations have streamlined compliance, and allowed co-investment and funds to invest more than 25 per cent of funds’ corpus in a single portfolio company, thus bringing on par the regulations with other jurisdictions.
As a result, around 70 funds have registered in IFSC-GIFT committing capital in excess of $15 billion. IFSC funds are now considered to be on par with offshore funds.
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IFSC-GIFT City provides the necessary business landscape that has the potential to fulfill the aspirations and ambitions of numerous entrepreneurs and start-ups.
By creating the necessary infrastructure to welcome foreign investment growth of the Indian economy to well above 7-8 per cent on a sustained basis, it is fast becoming a reality.
