The Gujarat International Finance Tec-City International Financial Services Centre (GIFT IFSC) is an International Financial Services Centre (IFSC) created to serve as a financial centre and hub, supporting major international financial activities including banking, insurance, capital market activities, asset management etc, besides providing world class infrastructure. It was established by the Gujarat Government and supported by the Government of India. The GIFT IFSC is the first IFSC in India and it was operationalised in April 2015 when the Reserve Bank of India granted license to operate an International Financial Services Centre (IFSC) within GIFT IFSC.
What is an International Financial Services Centre?
An International Financial Centre is a designated centre within a country that provides financial services across borders. London, Singapore, Hong Kong, Dubai, and Frankfurt are the major IFSCs. Running an IFSC need extra care and necessitates supportive interventions by the concerned government. Differentiated regulations, institutional mechanisms like own stock exchange, conducive tax laws, currency convertibility provisions, ability to handle complex financial products, presence of renowned international financial institutions etc. are the whole mark of IFSCs. Following are some of the features of IFSCs:
- Regulatory Framework: IFSCs have a unique regulatory framework, which is different from the rest of the economy. They should have more relaxed and business-friendly regulations, designed to attract global financial players.
- Tax Incentives: Generally, IFSCs offer tax incentives and concessions to attract financial institutions like banks, investors, and corporates.
- Currency Convertibility: The presence of sufficient currency convertibility is essential to facilitate international business. Currency convertibility (the ability to convert one currency to another with legal backing) facilitates easy movement of funds in various currencies without significant restrictions.
- Quality Infrastructure: Financial operations and businesses need robust infrastructure, including state-of-the-art technology and communication facilities.
- Wide Range of Services: Offering a wide range of services – especially financial services and products is the major attraction of every IFSCs. They should offer all financial services, including banking, insurance, asset management, capital markets (including equity and derivative), venture capital services, fund management (including syndicated loans), and other financial intermediation services.
- Global Reach: IFSCs are designed to offer their services to clients and investors from all around the world.
Development of the GIFT IFSC
Though the GIFT IFSC got its current structure and size in 2015 with the RBI permission, the centre took its first step in 2007, when the Gujarat government decided its creation as an international financial services centre. Since then, the venture has gone through several phases of development and culminating in its current form with hosting numerous international and national entities that provide a wide range of financial services. The central government’s continuous effort through policy incentives like tax incentives, supportive regulations for the GIFT IFSC to handle international financial services etc. played a key role in the development of the centre.
The financial centre is situated in Gandhinagar, Gujarat, covering nearly 261 acres.
In a recent step, the government allowed Indian companies to list their Depository Receipts on foreign stock exchanges, through the GIFT IFSC.
Objectives of GIFT IFSC
The main objective of GIFT IFSC is to offer world-class infrastructure and global financial services on par with prominent international financial centres like Singapore and Hong Kong.
Regulation of GIFT IFSC
The GIFT IFSC is regulated by an independent regulator created by the government – the International Financial Services Centres Authority. Regulation by conventional entities like SEBI may not cater to the dynamic development needs of an international financial centres like GIFT, and this is the reason why a dedicated and unique regulator was created for GIFT IFSC. The Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), and Pension Fund Regulatory and Development Authority (PFRDA) are the regulatory authorities overseeing various financial products and services within the IFSC.
Key activities in the GIFT IFSC:
The GIFT IFSC is gradually expanding its reach into various areas of finance, with a strong focus on establishing itself as a global financial center. The following financial activities are facilitated within the infrastructure of the GIFT IFSC:
(1) Capital Markets: The GIFT IFSC houses a dedicated exchange known as India International Exchange Ltd or India INX, India’s first International Stock Exchange. Operating 22 hours a day, six days a week, India INX supports the investment activities of NRIs and global investors, offering services such as equity trading and other ancillary activities. The India INX is a fully owned subsidiary of the Bombay Stock Exchange.
(2) Offshore Banking: The GIFT IFSC provides a platform for offshore banking services, including corporate banking, External Commercial Borrowing facilitation, factoring, and servicing of Indian joint ventures.
(3) Offshore Insurance: Entities within the GIFT IFSC offer diverse types of insurance products, including general insurance, life insurance, and reinsurance. Several multinational insurance companies operate from this center.
(4) Asset Management: The GIFT IFSC serves as a hub for asset management service providers, including Alternative Investment Funds and Mutual Funds.
(5) Ancillary Services: Various ancillary services related to international finance, such as legal services, accounting services, and research and development, are also offered from the GIFT IFSC.
Incentives extended at the IFSC:
Since its inception, the government has been offering several incentives and facilitating policies for companies, financial institutions, and startups to establish their international financial services operations in the GIFT IFSC. The center is designed to support offshore financial services such as currency exchanges, derivative trading, and asset management.
Tax holidays are provided to companies with offices and operations in the GIFT IFSC, encompassing exemptions on Income tax, GST, Dividend Distribution Tax, and capital gains tax. Furthermore, there is tax exemption on bond trading and derivative trading.
Moreover, the GIFT IFSC streamlines processes by offering single-window clearances for various business services. The center provides incentives to business units in accordance with Double Taxation Avoidance Agreements and other treaty obligations.
Challenges for the IFSC:
The GIFT IFSC faces several challenges in its quest to become a premier financial center, including:
Quality Infrastructure: Establishing and maintaining world-class infrastructure to compete with global financial centers like Singapore and Dubai.
Attracting Expertise: Attracting top financial entities and skilled professionals to operate within the GIFT IFSC.
Providing Incentives: Continuing to offer competitive incentives to encourage businesses to set up operations in the center.
By addressing these challenges, the GIFT IFSC aims to strengthen its position as a leading player in the international financial services landscape. Dubai and Singapore are not only competitors but also role models to emulate.
Sources:
1. GIFT IFSC
3. RBI on the creation of IFSC Authority.
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