IFSC a path-breaking financial reform: Economic Survey

Chief economic advisor to the Union government, V Anantha Nageswaran, released the Economic Survey 2023-2024 on Tuesday after finance minister Nirmala Sitharaman tabled it in Parliament on the first day of the Budget Session.

India’s maiden International Financial Services Centre (IFSC) in Gujarat International Finance Tec-City (GIFT City) at Gandhinagar has been a path breaking financial reform, underpinning the country’s increasingly liberal outlook towards capital account convertibility, according to the Economic Survey report released on Tuesday.

The economic survey forecast its economy will grow 6 per cent to 6.8 per cent in the next financial year starting April 1, down from 7 per cent projected for the current year.

“Globally, International Financial Centres (IFCs) have assumed prominence in the financial services ecosystem primarily because they have contributed enormously to the growth of international financial transactions,” it said. “These centres have played a pivotal role in accelerating the pace of financial globalisation.”

Chief economic advisor to the Union government, V Anantha Nageswaran, released the Economic Survey 2023-2024 on Tuesday after finance minister Nirmala Sitharaman tabled it in Parliament on the first day of the Budget Session.

In common parlance, the survey report explained, an IFC is a jurisdiction with a high concentration of financial institutions such as banks, stock markets and related entities, insurance firms, fund managers, FinTech firms, etc. which offer specialised financial services to non-residents and residents in an environment that promotes financial innovation and facilitates cross border transactions.

“Given this backdrop, setting up and operationalising India’s maiden IFSC in GIFT City has been a path-breaking financial reform underpinning India’s increasingly liberal outlook towards capital account convertibility,” the survey report said.

GIFT-IFSC is housed in India’s first fully operational Smart City with world-class commercial, social and physical infrastructure.

“To bolster the development of IFSC, the government took a major policy decision to establish the first of its kind, unified and agile financial sector regulator for IFSCs viz International Financial Services Centres Authority (IFSCA) through an Act of Parliament in 2019,” it said. “From October 1, 2020, IFSCA assumed the power of four domestic sector regulators, namely RBI, SEBI, IRDAI & Pension Fund Regulatory and Development Authority of India (PFRDAI), in so far as the development and regulation of IFSCs in India were concerned.”

India has a partially convertible capital account that allows the domestic currency to be converted to a foreign currency for only limited purposes. For internationalisation of rupee, full capital account convertability is required.

“Over the last two years, GIFT-IFSC has witnessed tremendous growth and traction across the entire spectrum of financial services, including banking, capital markets, insurance, fund management, aircraft leasing, etc. With an internationally aligned regulatory regime, competitive tax structure and beneficial cost of operations, GIFT IFSC is now emerging as a preferred jurisdiction for international financial services,” said the economic survey report.

Recognising the growing significance of IFSC, the Global Financial Centres Index, London Report (March 2022) put IFSC in GIFT City at the top, among 15 centres globally, the survey report said.

“GIFT IFSC has more than 390 entities registered across a full spectrum of financial services, including Banks, Capital Markets, Insurance, FinTech, Aircraft Leasing, Bullion Exchange, etc,” it said. “The financial services market is rapidly growing with the healthy and increasing participation of international and domestic financial institutions.”

To fuel the next phase of growth for the FinTech ecosystem, the Union government is developing GIFT IFSC as the nerve centre of all FinTech activities.

“FY23 is a watershed year for IFSC. It marks a decade of India’s maiden IFSC. The vision plan beyond 2022 revolves around elevating GIFT-IFSC to a virtuous self-sustaining trajectory towards becoming the nerve centre of new-age global financial services and activities...Within years of its establishment, GIFT-IFSC has become a prominent gateway for the flow of global capital into India,” the survey report said.

“Significant gains have been made in kickstarting experimental and innovative financial services such as bullion trading, aircraft and ship leasing, global-in house centres, Fintech, sustainable financing and cross-border bill discounting and factoring. Sophisticated financial products such as Bullion Depository Receipts, unsponsored Depository Receipts, and financial and operational leases have been introduced, with many more in the pipeline,” it added.

State-of-the-art infrastructure has been created for wholesome quality of life with essential projects including metro connectivity, integrated residential projects, Central Park, Riverfront and recreational centres on the anvil, it said.

“The foundation has been laid for creating a thriving knowledge economy by allowing foreign universities to set up operations in IFSC free of domestic regulations. Simultaneously, external assistance is mobilised to establish India’s premier Fintech Institute and Innovation Centre in GIFT City,” it said. “The Centre, with an estimated cost of ₹800 crore, will underpin India’s growing stature and leadership in Fintech and attract the best of talent globally. Significantly, the Government’s vision for GIFT-IFSC transcends much beyond traditional finance and ventures into thought leadership.”