How IFSC-GIFT City would help startups and entrepreneurs in India? The IFSC in GIFT City is expected to play a significant role in improving Indian entrepreneurs’ access to global capital as well as reaching out for innovative financial products and solutions, enabling rapid integration of domestic business with opportunities around the globe, as the country’s economy moves toward a gross domestic product (GDP) of $5 trillion and beyond.
Several proactive legislative and policy efforts have been undertaken since 2019. The concept was conceived in 2008 and operationalized in 2015 with the goal of “onshore the offshoring of business” and becoming a competitive alternative to countries like Dubai, Singapore, and Mauritius.
Multinational banks, financial services firms, asset management firms, investment managers, alternative funds, insurance firms, stock exchanges, clearing organizations, international bullion exchange, etc. have all started operations in IFSC-Gift City thanks in large part to these.
In addition to organizations in the banking and financial services (BFSI) sector, other businesses in the process of establishing themselves include family offices, fintech firms, biotech, leasing companies, engineering, automotive, maritime, and even international colleges.
A single window clearance system for entities and regulations that are comparable to those in other jurisdictions have been made possible by Unified Regulator IFSCA, a single regulator that has taken over authority from RBI, SEBI, and IRDA for GIFT City jurisdiction.Through the establishment of data embassies and an EXIM Bank subsidiary, the government hopes to facilitate business dealings and foster GIFT City’s economic potential.
Principal Projects of ISFC GIFT City
According to FEMA guidelines, entities that are registered in GIFT City are regarded as non-residents. Ten years of tax holidays, the absence of GST and MAT, and the ease of filing returns have all encouraged businesses to establish themselves in GIFT City.
A number of significant steps have been made recently, some of which I will list below to highlight the prospects for growth for all parties involved:
- An essential component of India’s expanding economy are startups. Over the past ten years, a vast pool of talented technocrats has drawn over $140 billion for various initiatives. Venture capital and private equity have been essential in supporting and funding these start-ups.
But a lot of these endeavors have involved “flipping” and establishing bases outside of the nation. The main causes include lower compliance, closer proximity to investors, favorable tax regimes, and stronger currency values overseas.
A committee headed by the former executive director of the Reserve Bank of India was recently established by IFSCA to investigate ways to halt “Flipping” and speed up and reverse the process at the IFSC-GIFT City.
The committee has made a number of important recommendations. Many of these suggestions can be put into practice in the near to medium future.
The main recommendations were:
- Modifications to Company Law and Regulations, such as a more straightforward process for holding company incorporation, a separation of IFSC investments from the overall LRS cap, and an annual cap above $250,000.
- Angel tax exemption; tax neutrality on relocation; tax rate rationalization; carried forward losses after relocation for more than ten years; tax exemption on dividends; establishment of special courts in GIFT jurisdiction for expedited arbitration and dispute resolution; and advance ruling mechanisms.
- Adopting these suggestions more quickly will significantly improve IFSC – GIFT City’s business prospects.
2. The government recognized offshore derivative contracts and acquisition finance provided by IFSC Banking entities as legitimate contracts in the most recent budget.
3. Changes to the index trade from Singapore, the allowance of fractional share investments, and the unsponsored depository receipt of US securities are all steps toward expanding IFSC-GIFT City’s access to the capital markets.
4. A number of Indian businesses who previously relied on trade finance and external commercial borrowings may now be able to obtain funding from IFSC-GIFT city at a reduced cost. It is anticipated that this will encourage sectors of the economy that heavily rely on the ECB to use IFSC-GIFT funding arrangements.
5. Because the withholding tax that was formerly applied to lenders for income generated on foreign currency loans has been eliminated, several businesses are also thinking of listing their bonds in GIFT City. Additionally, interest generated on bonds is subject to a lesser tax.
6. IFSCA announced Fund Management regulations in April 2022. The Fund Manager is subject to certain regulations. In order to bring the regulations up to pace with those in other jurisdictions, the regulations have simplified compliance and permitted co-investment and funds to invest more than 25% of their corpus in a single portfolio firm.
As a result, more than 70 funds with capital commitments exceeding $15 billion have registered with IFSC-GIFT. These days, IFSC funds are seen as comparable to offshore funds.
The business environment that IFSC-GIFT City offers is essential for realizing the goals and dreams of many entrepreneurs and start-ups.
It is quickly becoming a reality by building the required infrastructure to accept foreign investment and develop the Indian economy to well over 7-8 percent on a sustainable basis.
