 "GIFT City")
The move could deal a blow to GIFT City’s ambitions to become a one-stop shop. | Image: Bloomberg
Regulators have stopped allowing local family offices to set up mutual funds in their new financial center, fearing the arrangements could be abused to evade taxes and capital controls, people familiar with the matter said.
The Gujarat International Finance Tec-City regulator is halting approval of family funds following feedback from the central bank, said the people, who asked not to be named discussing private matters. The Reserve Bank of India fears that easing capital controls on such instruments could create loopholes that could be exploited for money laundering, they said.
The move could hurt GIFT City’s ambitions to become a one-stop shop for overseas investment by wealthy individuals. The financial hub in Prime Minister Narendra Modi’s home state of Gujarat was set up as a pilot free-market project, unfettered by local tax and capital flow regulations.
In January, the special economic zone gave billionaire Azim Premji’s family office its first in-principle approval to invest its capital abroad, raising hopes of dozens of applications that were in process, Bloomberg News reported. With no final approval since then, family funds are now trying to open investment offices in countries such as Singapore and Dubai, the people said.
Representatives of the International Financial Services Centres Authority, which manages GIFT City, the RBI and Premji’s office did not respond to emailed requests for comment.
India has strict controls on the transfer of capital abroad. Foreign exchange regulations limit foreign investment per capita to $250,000. The upper limit includes the purchase of real estate, investments in stocks and securities, and the establishment of joint ventures or subsidiaries.
GIFT City enables Indian residents to invest overseas using instruments from global banks and wealth advisors such as HSBC Holdings Plc, 360 One WAM and Nuvama Wealth Management.
The latest move is aimed at closing a legal loophole that would have allowed Indians living in India to transfer more than the permitted capital abroad, the people said.
This comes amid a wealth boom in the world’s fastest-growing economy. According to a wealth report by Knight Frank, the number of people with assets of more than $30 million is expected to rise by 50 percent between 2023 and 2028. As they seek to diversify their investments, they have become the prime target of banks looking for new money.
First published: August 20, 2024 | 6:54 p.m. IS
