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Union Budget 2022: The essential GIFTs for the Indian IFSC dream

In the context of International Financial Services (IFSC), the focus of Budget 2022 is expected to enhance the ease of doing business in IFSC. The objective should be to not just grow the IFSC as the “go to” financial hub but also as the one stop destination for all businesses within the ecosystem.

Union Budget 2022: The essential GIFTs for the Indian IFSC dream
International Financial Services Centre (IFSC). (Source- PTI)

By Ketaki Mehta

The International Financial Services Centre (“IFSC”) was launched in 2015, is situated in Gujarat International Finance Tec-City (“GIFT City”) special economic zone and since then, year on year, the annual Budget has been providing smaller gifts towards the growth of the IFSC. However, as this baby grows bigger, so do the expectations from the Union Government in the Budget!

In the last 18 months, with International Financial Services Centres Authority (“IFSCA”) donning the mantle of a unified regulator, IFSC has seen greater investor confidence and flow of global players willing to explore the domestic market of India. The IFSC has not only witnessed a tremendous interest from financial services’ providers across sectors but is also cementing its position as umbrella jurisdiction providing financial services and products comparative with the global financial markets. While providing a platform to Indian banks for off shoring the conventional financial products and services, the IFSC is also emerging as the Indian gateway for experimenting new age products like the unsponsored depository receipts, crypto ETFs, green bonds, and bullion depository receipts and venturing into the financial markets of the more developed countries such as aircraft leasing, ship leasing and global in house centres.

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In-essence

In the context of the IFSC, the focus of the Budget 2022 is expected to enhance the ease of doing business in the IFSC along with attracting not just the world’s best investments but also provide them with the best of Indian talent, the objective should be to not just grow the IFSC as the “go to” financial hub but also as the one stop destination for all businesses within the ecosystem. 

The Expectations- The Haves and Have-nots

One-stop solution: One of the key enablers for ensuring ease of doing business in any jurisdiction is ensuring efficient and effective dispute resolution. While a representative office of SIAC is available as a paper facility, it may be more comforting from an investor stand-point to see that not just the arbitrable but also non arbitrable disputes/ crimes/ actions can be professionally resolved within the same ecosystem. The Budget may provide a roadway to create the requisite infrastructure for an autonomous dispute resolution mechanism in the IFSC through international level arbitration and mediation centres backed by dedicated and well equipped IFSC courts. This will result in boosting investor confidence and will reduce the dependence on the local courts of Gandhinagar, Gujarat.

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Attracting the talent bee: In a recent visit to IFSC in November 2021, our Finance Minister, Ms. Nirmala Sitharaman announced clearance of proposals worth Rs 469 crores as a commitment to make IFSC a world-class fintech hub. However, in order to achieve this, it is essential that the right talent is made easily available to the new entrants and existing believers of the IFSC system. A talented work pool can become the backbone of success for the Indian IFSC. The Budget can ensure this by focussing on development of social infrastructure in and around GIFT City while parallelly, also mulling over the idea of providing specific tax incentives or relaxations to individuals employed within the IFSC. Special education institutions may be set up for fostering Indian talent with specific focus on products and services offered or that can be offered in the IFSC.

Equal opportunity to attract outgoing resident investments: The current LRS scheme permits an Indian resident to remit up to USD 250,000 per financial year for various defined transactions including offshore investments. However, for any such investment made through an IFSC account, the investment can only be made in securities issued in IFSC and to the extent that the funds are not invested, they are ineligible to draw any interest or remain idle beyond 15 days. Additionally, if repatriated back to India, this amount also depletes the limit of USD 250,000 per financial year. It is essential that the opportunities provided by IFSC to a resident individual Indian are at least at par (if not better) with other global financial hubs. This should be one of the easiest to give and most reasonable ask for the Indian IFSC to benefit by liberalising the investment norms for resident investments investing under the liberalised remittance scheme.

The offshore exchange: In the past few months, IFSC witnessed listing of many known names listing their green bonds in dollars, including companies like Indian Railway Finance Corporation. It may be incentivising for the IFSC capital markets if the Budget could provide special incentives to Indian companies, proposing to list their bonds in offshore jurisdictions, to instead raise such funds through the IFSC exchanges. 

True single window clearance: While IFSCA is empowered as a unified regulator, various inter-regulatory issues arise the moment investment is required to be made into India or from India or for resident Indians. While adhering to home country regulatory norms is not uncommon, the time and effort for the same could be minimised and ease of investment enhanced if only a standard operating procedure with defined timelines could be rolled out for centralising the approval process and routing them through IFSCA for each IFSC entity. 

Onward and upwards: Even though the Government has in the past years provided incentives to encourage the startup ecosystem in the country, a large amount of Indians have found their startup abode in offshore markets. It could be helpful for the Budget to provide specific incentive for startups to experiment in the IFSC, which gives them the opportunity to remain offshore, while being onshore and transact as a non resident. 

Parting Thoughts

While the wish list could be much longer, these could be the most budgetary asks, for the current times!

The year 1991 made history with liberalising the Indian economy and opening the gate to foreign investments. With the IFSC at GIFT City, India is yet again on the path to disrupt the global financial markets and create history.

(Ketaki Mehta is Partner at Cyril Amarchand Mangaldas. The article was authored with contribution from Jinisha Motwani, Associate at Cyril Amarchand Mangaldas. The views expressed are authors’ own.)

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