Letters to the editor
Newsday
DR. DIPESH SHAH
The Government of India has undertaken a major financial sector reform by establishing the country’s first International Financial Services Centre (IFSC) in GIFT City, Gujarat. The IFSC has been developed as a unique international financial jurisdiction within mainland India, which has been designated as a non-resident zone under the Foreign Exchange Management (FEM) Act. This special status allows financial transactions to be conducted in any of the 15 approved foreign currencies, including the US dollar, British pound, euro and yen.
The IFSC was established with two main objectives, namely:
(a) onshoring of the India-focused international financial services business; and
b) It serves as a preferred gateway for channeling global capital flows into and out of the country.
Over the last few years, GIFT IFSC has made remarkable progress in positioning itself as a new age global financial centre, providing the global financial services industry with an ideal platform for more efficient integration into the Indian economy.
An important milestone in the development of the IFSC to date was the establishment of the International Financial Services Centres Authority (IFSCA) as a unified statutory body for the development and regulation of IFSCs in India.
Since October 2020, the IFSCA has exercised its statutory powers and notified over 29 regulations and more than 14 frameworks covering the entire spectrum of financial services, including banking, capital markets, insurance, fund industry, fintech, aircraft leasing, ship leasing and global corporate treasury centers.
The Government is committed to developing GIFT IFSC into an internationally recognized financial centre with trusted business regulations, competitive tax regime and ease of doing business.
Today, the GIFT IFSC initiative is a testament to India’s strong commitment to undertake bold and transformative reforms in the financial sector. This ambitious project aims to catalyze global capital flows into the country and accelerate the integration of the Indian economy into the global financial ecosystem.
As of July, over 600 companies across banking, capital markets, insurance, fintech, aircraft leasing, ship leasing, precious metals exchange, etc. were registered with IFSCA. The financial services market is gaining momentum with strong and increasing participation from global and domestic financial services institutions. Business growth in some of the key sectors is highlighted below:
Banking sector: The banking ecosystem in GIFT IFSC is evolving rapidly and comprises a healthy mix of foreign and domestic banks, primarily catering to the foreign exchange borrowing requirements of Indian corporates and public sector enterprises through external commercial lending, trade finance, etc.
Transactions under these positions, which were previously booked by foreign financial centres, are now booked out by GIFT IFSC. In March, the total asset size of IFSC banking units (IBUs) exceeded $60 billion and the total value of transactions conducted by IBUs exceeded $795 billion.
Fund industry: The growth of a robust fund industry in the GIFT IFSC has a transformative impact in accelerating global capital inflows into India, including for the start-up ecosystem.
Until now, the pooling of international capital for investment in India has been structured through funds (private equity, venture capital, hedge funds, etc.) set up in offshore jurisdictions. With appropriate regulations, a competitive tax regime and low cost of operation, GIFT IFSC is now emerging as a preferred jurisdiction for pooling of global capital by foreign and Indian fund managers.
Over the past three years, there has been rapid growth in the number of fund management companies (FMEs) and alternative investment funds (AIFs) registered with the IFSCA. The cumulative registered FMEs and funds increased from 39 and 33 respectively in September 2022 to 114 and 120 respectively in March.
Aircraft leasing: The aviation industry in India is poised for unprecedented growth. Indian airlines have a strong order book of over 1,500 aircraft and a requirement of over 2,200 aircraft is forecast by 2042. Currently, most of the aircraft of Indian airlines are leased from offshore lessors who have access to competitive capital costs.
The aircraft leasing and financing business, the most profitable segment of the aviation value chain, was entirely based abroad. The IFSCA recognized the enormous potential of the aircraft leasing and financing business and introduced the leasing framework. The government supported the venture with various tax incentives.
Over the last three years, the IFSC has seen initial positive developments, with more than 28 aircraft lessors having registered. They have leased over 120 aircraft, including commercial aircraft, helicopters, aircraft engines and ground equipment.
Initiative Foreign Universities: As an offshore jurisdiction, the IFSC is uniquely positioned to become an ‘international hub of higher education’ by attracting top international universities keen to explore India for its talent and demographic profile.
IFSCA achieved a significant milestone in financial year 2024 when Deakin University of Australia became the first overseas university to receive final registration for its international branch campus in the GIFT IFSC under the IFSCA (Establishment and Operation of International Branch Campus and Offshore Education Centres) Regulations 2022. The University of Wollongong of Australia became the second overseas university to receive in-principle approval for its international branch campus in the GIFT IFSC.
Global in-house centers: Globally, information technology and digital practices have facilitated the cross-border flow of accounting, auditing, tax and bookkeeping services and promoted the growth of global in-house centers (GICs).
GIFT IFSC is uniquely positioned to offer such services to global clients. A leading US institution, namely Bank of America, has already established a large GIC unit in GIFT IFSC to provide in-house support services for the bank’s global operations. Several other international firms are currently evaluating the GIC opportunity in GIFT IFSC.
GIFT IFSC is expected to play a significant role in realising the vision of a developed India in 2047.
Dr Dipesh Shah is Managing Director (Development) at International Financial Services Centres Authority, GIFT City
