Experts bat for central govt buying stake in GIFT City to boost credibility

Suggest more incentives to help attract investments from Hong Kong

Experts believe that senior bureaucrat Injeti Srinivas’s appointment as chairman of the International Financial Services Centre Authority (IFSCA) for GIFT City, based in Gandhinagar, has opened up many opportunities, and they have urged the Centre to buy a stake in the IFSC.

After the Gujarat government bought IL&FS’ 50 per cent holding (it now has full control), there is a possibility that it could part with some of this stake.

Aditya Sesh, managing director of Basiz Fund Service, said: “It would be good if the Centre holds an indirect stake in GIFT City (Gujarat International Finance Tec-City) ”. He said this could raise GIFT City’s credibility.

Sesh said the Centre can promote GIFT City to AIFs (Alternative Investment Funds) investing in India or holding companies entering India. He said it could also be promoted to firms using AIFs to invest worldwide or use the IFSC to act as a pure servicing centre for AIFs globally.

“It makes good commercial and strategic sense for NIIF’s alternative fund (India’s own sovereign wealth fund, or SWF) called the Strategic Fund to take a stake in GIFT City. This will vastly enhance GIFT IFSC’s ability to leverage at fine rates (for borrowing), if required in the future, because of the SWF investment and Government of India’s sovereign rating,” Sesh said.

There could be another benefit as well. A central government stake will help it to nudge further reforms. Globally, all major IFSCs are developed and anchored by their respective governments.

Sandeep Parekh, managing partner at Finsec Law Advisors, said a central stake in the IFSC “can provide a truly international centre”. “This will help it to negotiate at government to government level for attracting more foreign business in the IFSC,” he added.

 

 

Recently, China tightened its grip over Hong Kong through a national security law, and it is facing unrest as a result. Many settled in Hong Kong are not comfortable with this, and some foreign investors are considering moving out of Hong Kong. This is an opportunity for India.
 

Parekh said, “It’s an opportune time for India to attract business at the GIFT City from those exiting Hong Kong. However, a well regulated environment along with attractive tax structure is needed for this. The IFSC can capture both inbound and outbound investments.”

Experts also said that further incentives would be needed, without which it might not be easy to attract funds to operate from GIFT City.

“Many investors and funds that invested via Hong Kong are also looking to diversify to other centres. GIFT IFSC is an alternative that can service not just India oriented investments, but also be a hub for servicing global investors much like Hong Kong, Singapore, Mauritius or other domiciles,” Sesh said.

The GIFT City authorities this week approved 28 proposals from firms for setting up units there. This is expected to generate 2,000 jobs over the next 2-3 years.

BSE-promoted India International Exchange (India INX) has been operating successfully at GIFT City and has an 85 per cent market share there. V Balasubramaniam, the exchange’s MD and CEO, said, “This is clearly an inflection point for policymakers to the attract the fund industry and trading business and create a vibrant financial services ecosystem.” He added that there should be “good regulatory and taxation system that provides certainty, cost advantages and ease of business”.

A banker operating in GIFT City said direct dollar clearing or clearing in other major foreign currencies like the pound and euro is permitted in Hong Kong. India should allow this as it could make a difference.

A Permanent Account Number is required for fund houses that wish to invest in the GIFT City. That requirement should be at scheme level and not fund or platform level. This will help reduce the tax burden, which matters when investments are in more than one scheme of the same fund, the banker said.