Drawing foreign investors

Divakar Vijayasarathy | Updated on May 11, 2021

GIFT City is set to put India on the global financial map

In the backdrop of the country’s rapid financial growth and robust projections, the GIFT City financial and technology gateway assumes great significance. Formed by Gujarat International Finance Tec-City Company Limited, the Gujarat International Finance Tech City (GIFT) is a planned and integrated business district near Gandhinagar in Gujarat, with International Financial Services Centre (IFSC) status.

Built on 886 acres with 62 million sq. ft. of built-up area, GIFT City is conceived as a smart city, with modern urban planning that adheres to energy and environment conservation policies. About 20 per cent of the proposed greenfield development at GIFT City has been completed in the last 10 years. The project has attracted investments of ₹11,000 crore in Phase I and about ₹2,000 crore has been spent on infrastructure. Currently, 225 units employ a workforce of more than 10,000.

At present, 13 leading banks, four insurance companies, 14 insurance intermediaries and two stock exchanges have their units in IFSC. Many leading funds and aviation leasing companies have already lined up for setting up shop at GIFT, post the encouraging Budget proposals of 2021.

On the regulatory front, the International Financial Services Centres Authority is the regulator of IFSCs including GIFT City. It has approved the draft banking regulations that will be applicable in international financial services centres at Gujarat’s GIFT City. The draft regulations will lay down the requirements for setting up IFSC banking units and the permissible activities of IFSC Banking Units (IBUs), including credit enhancement, credit insurance, and purchase of portfolios.

Since inception, the government has consistently made efforts to make the tax and regulatory scenario at par with popular off-shore jurisdictions globally.

This apart the government has been proactively addressing multiple regulatory hurdles and instituting enablers to make the jurisdiction attractive for both outbound and inbound funds, service providers and intermediaries. Some of the recent regulatory initiatives include:

* Relaxing the conditions for fund managers to claim tax exemptions.

* Elimination of tax on transfer of bonds, Global Depository Receipts (GDRs) or derivatives or specified securities, on a recognised stock exchange located in IFSC for the investment division of an Offshore Banking Unit (OBU).

* Exemption of capital gains arising to a non-resident from transfer of non-deliverable forward contracts entered with an OBU.

* Capital gains tax relief for relocation of a foreign fund into IFSC to non-resident investors, stakeholders and foreign fund.

On August 3, 2020, the IFSC International Retail Business Development Committee presented the final report to IFSC Authority to create a roadmap for augmenting international retail business and overall development in the IFSC. The recommendations were categorised in three parameters — banking, insurance and asset management and capital markets. One of the recommendations for asset management and capital markets was to allow hybrid structures such as a Variable Capital Company (VCC) for managing funds in the IFSC.

VCC is a new legal entity form/structure for all types of investment funds. It can be formed as a single standalone fund, or as an umbrella fund with two or more sub-funds, each holding different assets. Based on the above recommendation, the International Financial Services Centres Authority has set up a Committee of Experts for examining the feasibility of the VCC. This apart, the leadership team at IFSC is working on carve outs from a plethora of existing regulations like Companies Act, FEMA, Trust Act etc which should take shape in near future.

The GIFT city is India’s answer to favourable and predictable regulatory regime in the financial and off-shore services space. While the progress has been gradual, the recent thrust and intent are encouraging .

Considering global off-shores like Hong Kong, Singapore, or Mauritius, India has a huge hinterland advantage that can be well-tapped with a thriving GIFT city. With an enabling regulatory regime, thriving infrastructure and a committed leadership, the GIFT City is poised to put India on the global financial map.

The writer is Founder and Managing Partner, DVS Advisors LLP.

Published on May 11, 2021

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