Pathway to India for FPIs goes via GIFT IFSC

In a year marked by large-scale global macro-economic disruptions, India Inc emerged on the top. As evidence, consider that India outshone other developing economies in FY21 and amassed Foreign Portfolio Investment (FPIs) inflows of over $35.2 billion.

On a quarter on quarter basis, FPI inflows into Indian equities rose by 7% to $552 billion from $518 billion in the quarter ending December 2020. In the January-March quarter alone, FPIs pooled in an impressive $7.64 billion in Indian equities.

In the week ending May 14th, 2021, our foreign exchange reserves rose to $590.028 billion, coming very close to the high of $590.185 billion observed in January end. Rising foreign exchange reserves is a positive development as it can help the country brace a large import bill or even face an unanticipated economic crisis.

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The foreign investment needs that GIFT IFSC addresses

These foreign funds are channelled into India from the US and Europe via complex financial structures. They come through destinations such as Mauritius, Luxembourg, Singapore, Cayman Islands, Delaware (US) to name a few. Since the pooling of large flows of funds happens in these destinations, investment businesses have grown substantially in these countries.

Understanding this opportunity, India too could create an investment hub that allowed foreign investors to safely and seamlessly route their funds into India. This seed of an idea led to the establishment of the strategic economic and financial destination in Gujarat that is the GIFT IFSC. Interestingly, Global Financial Centres Index, London, has ranked the IFSC at GIFT City amongst the top three emerging business hubs globally.

The Finance Ministry in its press release of April 1st, 2021 outlined that the robust FPI flows have come on the back of faster than expected economic recovery supported by multiple tranches of innovatively designed stimulus packages. The Ministry has also undertaken major policy initiatives directed at improving ease of access and investment climate for FPIs in the recent past. These include simplification and rationalization of the FPI regulatory regime, operationalization of the online Common Application Form (CAF) for registration of FPIs with SEBI, allotment of PAN and opening of bank and Demat accounts etc.

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How does GIFT IFSC fit into the larger picture?

All these initiatives that are being led by the government are producing massive interest from foreign institutional investors. The International Financial Services Centre (IFSC), GIFT City is an emerging global financial and IT services hub, a first of its kind in India, designed to be at or above par with globally benchmarked business districts.

GIFT IFSC currently has 13 banks, 19 insurance firms and about 100 capital market entities operating within its domain. Additionally, two international exchanges running 22 hours a day are also operational in this zone.

Benefits that GIFT IFSC brings to the table

The investment destination has been developed as a deemed foreign destination from regulator perspective. Tax systems here are parallel to overseas foreign jurisdictions: Over the last 4-5 years, especially in the last budget, GIFT City has been made equal or better than some of the better-known tax havens of the world. GIFT IFSC capitalises on a SEBI regulation that mandates re-domiciliation. In other words, it spells out that there shall be no taxation if investment funds opt to relocate to GIFT City.

Further, a common regulator, which is effectively a combination of SEBI, IRDA and RBI has been set up in GIFT City which is indicative of the regulatory clarity one can expect to find in the investment destination. What’s more, interested investors get the convenience of a single-window clearance when they apply to set up a fund house in GIFT City.

The cost of setting up a fund house is much lower compared to the expenses one would have to foot to set up shop in foreign jurisdictions like Singapore, which can be five times as expensive.?Also, GIFT City is one of the FATF compliant locations.

Apart from being the only business hub in India to permit offshore transactions, GIFT IFSC has state-of-the-art infrastructure at par with other global financial centres and offers fiscal incentives in the form of exemptions and concessions. FPIs looking to come to GIFT IFSC will find an integrated ecosystem of banks, insurance, capital markets, law firms and consultancy firms and a wholly transparent operating environment, complying with global best practices and internationally accepted laws and regulatory processes.

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True Beacon and Kotak Mahindra bank

On May 20th, 2021, Kotak Mahindra Bank issued the first-ever FPI license to True Beacon Global, an AIF (Alternative Investment Fund) incorporated in GIFT IFSC clearing the pathway for expedited foreign inflows into India. This is the first-ever FPI license issued to an AIF incorporated in GIFT IFSC by any custodian bank or Designated Depository Participant in India. As pioneers in this field, Kotak Mahindra Bank looks forward to onboarding new investors and being a major stakeholder in easing the entry of FPIs by offering our wide range of services. Foreign fund inflows will only amplify going ahead and the setting up of an IFSC will add to India's reputation as a preferred investment destination.

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The dawn of a new era for investments in India

The onboarding of True Beacon Global as an AIF is only the first step in what promises to be a very productive and fruitful journey. India is yet to tap into its full potential as an investment destination and the GIFT IFSC is laying the cornerstone for an investment structure that will be a win-win for the domestic ecosystem as well as foreign investors. The setting up of GIFT IFSC will assist in realising the vision of the Indian government to emerge as a major economic powerhouse by facilitating the development of a strong base of International Financial Services companies? in the country. It will also help facilitate the implementation of the government’s strategy for the development of a financial hub in the South Asian subcontinent.

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Disclaimer:

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

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