The Indian government has undertaken a comprehensive financial sector reform with the establishment of the country’s first International Financial Services Centre (IFSC) in GIFT City, Gujarat.
The IFSC was 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 carried out in any of the fifteen notified foreign currencies, including USD, GBP, Euro and Yen.
The IFSC was established with two main objectives, namely:
- Onshoring of India-focused international financial services business
- 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.
A major milestone in the evolution of the IFSC so far 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 promulgated over 29 regulations and more than 14 frameworks covering the entire spectrum of financial services including banking, capital markets, insurance, the fund industry, fintech, aircraft leasing, ship leasing and global corporate treasury centres.
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.
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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 2024, more than 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 healthy and growing participation of global and domestic financial services institutions.
Business growth in some of the key sectors is highlighted below:
Banking sector: The banking ecosystem in the GIFT IFSC is evolving rapidly with a healthy mix of foreign and domestic banks primarily catering to the foreign currency borrowing needs of Indian corporates and public sector enterprises through external commercial borrowings, trade finance, etc. Transactions under these heads, which were previously booked by foreign financial centres, are now being booked out of the GIFT IFSC. As of March 2024, the total asset size of IFSC Banking Units (IBUs) exceeded USD 60 billion and the cumulative value of transactions conducted by IBUs exceeded USD 795 billion.
Fund industry: The growth of a robust fund industry in the GIFT IFSC has a transformative impact in catalyzing global capital inflows into India, including for the startup ecosystem. So far, pooling of international capital for investment in India was structured through funds (private equity, venture capital, hedge funds, etc.) set up in offshore jurisdictions. Now, with appropriate regulations, a competitive tax regime and cheap operational costs, the GIFT IFSC is emerging as a preferred jurisdiction for pooling of global capital by foreign and Indian fund managers. Over the last three years, there has been rapid growth in Fund Management Entities (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 2024.
Aircraft leasing: The aviation industry in India is poised for unprecedented growth. It has a strong backlog of more than 1,500 aircraft of Indian airlines and a forecast demand of more than 2,200 aircraft 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 in the aviation value chain, was entirely based in foreign countries. The IFSCA recognized the huge potential of the aircraft leasing and financing business and introduced the leasing framework. The government supported the venture with several tax incentives. In three years, the IFSC has started to show positive signs: more than 28 aircraft lessors have already registered. They have leased more than 120 aviation assets, including commercial aircraft, helicopters, aircraft engines and ground support equipment.
Initiative Foreign Universities: As an offshore jurisdiction, the IFSC is uniquely positioned to become an ‘International Centre for Higher Education’ by attracting top international universities keen to explore India for its talent and demographic profile. The IFSCA achieved a significant milestone in FY 2024 when Australia’s Deakin University became the first foreign university to receive final registration for its international branch campus in the GIFT IFSC under the IFSCA (Establishment and Operation of International Branch Campuses and Offshore Education Centres) Regulations 2022. The University of Wollongong of Australia was the second foreign 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 services such as accounting, audit, tax and bookkeeping and driven the growth of Global In-House Centres (GIC). GIFT IFSC is uniquely positioned to offer such services to global clients. A leading US institution, namely Bank of America, has already set up a major GIC unit in GIFT IFSC to provide in-house support services for the bank’s global operations. Several other international firms are currently exploring 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 the Managing Director (Development), International Financial Services Centres Authority (IFSCA), GIFT City.
