The government may be going all out to promote Gujarat International Finance Tec-city (GIFT) as a financial services hub on the lines of Singapore, Hong Kong, Dubai and London, but an immediate migration of business — initially estimated to be $50 billion annually — away from these established centres would hinge on clear tax incentives, world-class facilities and sharp prospects of growing trade potential.
On Friday, the Securities and Exchange Board of India (Sebi) issued guidelines for establishing international financial services centres (IFSCs). Any recognised domestic or foreign stock exchange can set up a subsidiary, in the ISFC, provided they hold at least 51% stake in the venture. The guidelines will be effective from April 1, 2015.
Indian and foreign bourses can set up separate exchanges, while banking and insurance entities can conduct money market, derivative trades and other trades in high-end financial products at Gujarat GIFT. Offshore banking, fund custody, insurance, assurance and reinsurance, corporate treasury management are other activities that can be launched.
Final guidelines, including an approval from the Reserve Bank of India to allow currency and other money market trades, are expected by the month-end.
However, there is still no clarity on the ease of business processes and tax incentives that will push foreign investors to use the GIFT platform to conduct trading business. Finance minister Arun Jaitley has indicated that the government is undertaking important steps to bring in tax reforms.
“The project is the first of its kind as other centres were not planned exclusively for the purpose of becoming an international finance hub,” said Ramakant Jha, CEO, Gift Gujarat. “The purpose is to ensure that India does not lose out on the $50 billion worth of business exported to offshore centres.”
BSE and NSE have already agreed to set up an international stock exchange. “An IFSC here can compete on rules and ease of business with other centres,” BSE MD Ashishkumar Chauhan said.
According to BSE brokers’ forum chairman Sidharth J Shah, “GIFT has the potential compared to others as its own market has a very high disposable income. The very fact that last year India received $34 billion NRI remittance shows how NRIs settled abroad view the Indian economy.”
But tax incentives and transparent laws are more vital to bring in foreign investors. For a country that has been grappling with issues such as Vodafone and Cairn India tax cases, there has to be strong government support.
“As of now, there is very little to entice companies to shift from say, Singapore or Hong Kong,” Fairwinds Private Equity CEO Ramesh Venkat said.Grey area on existing tax sops is another concern. "Taxability of foreign investors was announced in the budget, but there is lack of clarity on some aspects," said Walker Chandiok partner Riaz Thingna. "But if we take care of infrastructure and give a more comfortable scenario, we may be able to take the India-specific business. Around 10% of total FDI and FPI inflows could be the potential here."