Five Point Agenda for GIFT City to make it Credible Jurisdiction

According to the Department of Economic Affairs, Ministry of Finance, the government is working on a five-point reform proposal in which it is being seen that IFSC in Gujarat does not turn out to become a tax haven in the world. The main areas of focus for reforms are:

• Feasibility of launching more products at IFSC
• Extending the Liberalized Remittance Scheme for derivatives trading and margin payments
• A One-point local dollar clearing mechanism
• Facilitating retail non-resident Indian participation
• Doing away with the requirement of setting up a broking/trading unit at GIFT City

The first-ever international exchange was set up in the GIFT City in 2017 by the Bombay Stock Exchange (BSE) and a couple of months later it was followed by the NSE also. In the last three years of operations, the volumes have increased also for trading. Though SEBI allows the exchanges to launch all kinds of products, the bourses have only been permitted to trade in equity derivatives.

Regarding the LRS Scheme, now it allows a resident to invest up to $250000 a year only in stocks and properties abroad. This prohibits the residents from investing in derivatives and making payments towards margins or margin calls to overseas exchanges.

Banks are not allowed now to open savings accounts at IFSC and it restricts the participation of the retain NRIs in the GIFT City. The IFSC Banking Units are allowed to open foreign currency current accounts only of entities operating in IFSC and of non-resident institutional investors.

What is the International Financial Services Centre (IFSC)?

IFSC is a jurisdiction that provides financial services to the resident and non-resident Indians in foreign currencies. The main aim of this is to develop a world-class smart city in India that becomes a global financial hub with the development of an International Financial Services Centre. The government is also trying to bring back the financial services and transactions being carried out in off-shore financial centres by local corporate entities and overseas branches of financial institutions to India.

The GIFT IFSC is the first one in the country and it is a state-of-the-art infrastructure with the potential of providing 500000 direct and indirect jobs in the area. It has a data centre, connectivity, and transportation access with built-in technology for a sustainable ecosystem in the area. The project is a 50:50 joint venture between Infrastructure Leasing and Financial Services Limited and Gujarat Urban Development Company Limited.

Month: Current Affairs - July, 2020