GIFT ideas

| Updated on February 12, 2021 Published on February 12, 2021

Business at GIFT IFSC will thrive if more Indian companies use the platform to raise overseas funds

The changes made in the Budget to taxation of foreign investors operating in the GIFT International Financial Services Centre (IFSC) along with the recent move by the RBI to allow domestic investors to invest there, show that the Centre and the central bank are acting in tandem to make the Indian IFSC an active offshore investment hub. This is welcome; not only does a vibrant IFSC aid domestic companies raise funds from overseas investors and help the Centre garner additional revenue over the long term, it helps shift the offshore trading of rupee to India, giving authorities greater control over rupee movement. The tax incentives already given to entities operating from here, and the establishment of an international dispute resolution mechanism and the IFSC Authority have ensured that GIFT IFSC can compete with other offshore business centres in operating cost, ease of doing business and governance. What is now needed is to improve participation and increase the array of products.

The RBI’s permission to resident individuals to make remittances to the IFSC under the Liberalised Remittance Scheme (LRS) with the purpose of purchasing securities issued by non-resident entities, will help improve demand of products issued at the IFSC. Giving resident individuals permission to open non-interest bearing foreign currency accounts in the IFSC clears one of the biggest hurdles faced by the offshore centre. With a number of Indian banks and brokers already having a subsidiary in the IFSC, domestic investors, especially HNIs, will find it easy to invest in dollar-denominated bonds and other securities issued at the IFSC. The Budget has provided for tax neutral relocation of foreign funds to the GIFT IFSC, thus paving the way for foreign funds to shift from other offshore jurisdictions such as Singapore and Mauritius.

Last year, the RBI had allowed offshore units of Indian banks to participate in the offshore rupee non-deliverable forward market. These banks were further incentivised in the Budget. Providing tax holiday for capital gains of aircraft leasing companies set up in the IFSC and tax exemption for aircraft lease rentals paid to foreign lessors in the IFSC will encourage these companies to shift their base from low-tax jurisdictions. Activity is picking up at the Indian offshore business centre. India INX Exchange, which enjoys 95 per cent market share in the GIFT IFSC, records daily turnover of over $15 billion and has listed bonds worth $26.3 billion. Activity can get a further boost once more domestic companies come forward to make their overseas bond issuances on the GIFT IFSC. Awareness needs to be built among domestic companies regarding this.

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Published on February 12, 2021
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