GIFT finance city at an inflection
point (The Hindu)
Mains Paper 3: Economy
Prelims level: Gujarat International Finance TecCity
Mains level: Introducing Gujarat International Finance TecCity in Indian economy
- Towards the end of 2018, when the results of the Lok Sabha elections
were still in the realms of speculation.
- A financial market intermediary let it slip inadvertently that he was
surreptitiously planning to move the infrastructure installed in Gujarat’s
GIFT (Gujarat International Finance TecCity) to Mumbai.
- The GIFT, one of Prime Minister Modi’s pet projects, rolled out in 2015,
would have had no future if the election results had been adverse for the
- Most financial market intermediaries who are already well ensconced in
Mumbai, the financial capital of India, are not too happy about being asked
to shift to an IFSC in Gujarat.
- They would have been happier if the IFSC was set up in their backyard,
in the Bandra Kurla complex.
- But now that the NDA is in its second term, it has made the GIFT IFSC
one of its key focus areas.
- A number of key regulatory changes have been pushed through since May to
enable greater participation on these exchanges.
- Two major changes, in particular, are likely to be a game-changer for
the Indian IFSC, and could set it well on its way to sustainable growth.
The NSE-SGX connect
- One of the primary objectives behind setting up the GIFT IFSC was to
bring offshore trades based on Indian stocks and currencies to trading
platforms in the Indian IFSC.
- The Centre has been especially worried about migration of volumes in
Nifty futures to the Singapore Stock Exchange (SGX); they currently account
for 30-40 per cent of the daily turnover in Nifty futures.
- Indian bourses had upped the ante last year, deciding to stop providing
data feed to the SGX for enabling the trading of the SGX Nifty and other
India-based stock derivatives.
- The SGX had retaliated by constructing an index mimicking the Nifty 50,
and had threatened to continue trading these new products.
- With the entire issue going in to arbitration, both parties seem to have
come to a decision that ultimately favours the GIFT IFSC greatly.
- They plan to shift the entire trading in Nifty 50 futures as well as
other India-specific derivatives to the GIFT IFSC through a jointly promoted
platform, the NSE IFSC-SGX Connect.
- While the implementation could take another 18 months, this is likely to
give a large fillip to the traded volume on the GIFT IFSC exchanges.
- Daily traded volume of SGX Nifty futures are currently around $4-5
billion while the daily turnover of exchanges on the GIFT is currently $1.8
- It is likely that the large pool of liquidity in the NSE-SGX Connect
could make some FPIs registered with SEBI for trading in domestic exchanges
begin trading on the IFSC too.
Trading in rupee derivatives
- Another major development that can help the GIFT IFSC is the
recommendation of the RBI Task Force on Offshore Rupee Markets.
- This committee looked in to the manner in which rupee trades overseas
are beginning to bloat to significant levels, almost matching the level of
transaction in the inter-bank OTC market.
- This migration of volumes to Non Deliverable Forwards (NDF) markets
overseas not only results in significant loss to the revenue, it also leads
to higher possibility of distortions in rupee value due to speculative
- The task force has recommended that non-deliverable rupee derivatives
(with settlement in foreign currency) may be allowed on the GIFT IFSC.
- It is proposed that exchange-traded currency derivatives involving the
rupee may be introduced initially and non-deliverable OTC currency
derivatives involving the rupee may be allowed subsequently.
- The committee is also allowing positions without underlying exposure
$100 million in OTC as well as the exchange-traded currency derivative
Relocation not easy
- It is clear that the red carpet for FPIs is almost ready. Company Law
exemptions were provided in January 2017 and the International Dispute
Resolution Mechanism through the Singapore International Arbitration Centre
was set up at the GIFT in August 2017.
- A slew of tax incentives are available for units operating in the IFSC.
- Exchange-traded transactions on the GIFT City do not attract securities
transaction tax or commodity transaction tax.
- Capital gains made on transaction executed on GIFT exchanges are not
taxed, making the GIFT City comparable to other offshore financial centres.
- Services offered in this zone do not face an additional levy of the
Goods and Services Tax and the Minimum Alternate Tax of 9 per cent is levied
on book profits.
- The Government of Gujarat has further exempted stamp duty on entities
having a registered office in the GIFT for capital market activities.
Companies and mutual funds operating in the IFSC have also been exempted
from dividend distribution tax from current and accumulated incomes.
- The Budget 2019 allowed profit-linked deductions of 100 per cent of net
income for any 10 consecutive years out of 15, beginning with the year in
which the necessary permission was obtained, for companies registered in the
- There are also few more regulatory hitches that can be sorted out.
Individuals still cannot open a bank account in the GIFT City. While a via
media has been found recently, it will be good to ease this rule.
- Rules governing eligible foreign investors also need more clarity.
- Allowing listing of stocks, bonds and depository receipts on GIFT
Exchanges can enable domestic retail investors to also route the funds under
the Liberalised Remittance Scheme to GIFT exchanges.
Q.1) Which of the following is/are correct with reference to National
Small Savings Fund (NSSF)?
1. Its components include Postal deposits and Social Security Scheme's
2. It forms the part of the Public Acount of India
Select the correct answer using the code given below.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Q.1) The NSE-SGX Connect and start of trading in rupee derivatives will get the
global financial services centre up and running. Critically examine.