With China imposing a national security law in Hong Kong and investors planning to move out of the island-city, the prospects of the International Financial Services Centre (IFSC) in Gujarat are opening up.
The Prime Minister’s Office (PMO) has held a status review meeting of IFSC, and decided to resolve the issues related to the development of the Gujarat International Financial Tec-City (GIFT), Ahmedabad, where the IFSC is located. The meeting was held last week.
“Even after five years of commencing operations, IFSC still does not parity with international IFSCs. Now the government has decided to remove all hindrances,” said one of the people who attended the meeting.
The discussions largely centred around the Liberalised Remittance Scheme (LRS) and an Alternative Investment Fund (AIF). Securities and Exchange Board of India (SEBI) Chairman Ajay Tyagi, GIFT City Chief Executive Tapan Ray, senior finance ministry and RBI officials attended the meeting.
“If the government opens the LRS facility for individuals to invest in IFSC also, it will be a big boost,” said another person who attended the meeting. The Reserve Bank of India (RBI) now allows Indian residents to invest up to $250,000 annually in stock markets abroad.
“If foreign funds invest through Singapore in Indian exchanges like the BSE or the NSE, there is no short-term gain tax of 30 per cent. However, if they invest through IFSC in BSE/NSE, it attracts the tax. This makes the whole proposition unattractive and now the government is keen to change that,” said a source.
The committee also discussed issues related to the clearing house at IFSC. “Foreign currency-related trade in IFSC takes place through a nostro account, which typically takes 24-48 hours for clearing. A real-time localised clearing settlement mechanism at IFSC was discussed,” the source said.
“The government may appoint State Bank of India as the clearing bank for foreign currency- local clearing settlement in IFSC,” he said.
After this meeting, the government appointed Injeti Srinivas as the Chairman of the IFSC Authority. "In the next two months, the authority will appoint whole-time and part-time members from SEBI and RBI. GIFT City will allot space for the IFSC Authority," a source told Moneycontrol.
In May, US Secretary of State Mike Pompeo had said that Hong Kong no longer enjoys a higher degree of autonomy from China and several analysts have predicted that it may negatively affect the city’s special trading status with the US and its position as an international financial hub.
The Union government’s objective is to project IFSC as an alternative investment destination to Singapore, Hong Kong and Dubai.
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