The Economic Times: February, 2015
Mumbai: All financial market regulators have agreed to lay down the rules to enable India's first international finance centre to take off in Gujarat by April.
At a meeting on December 24, officials from RBI, Sebi and insurance regulator IRDA discussed the contours of the proposed regulations that will pave the way for dealings and settlement in foreign currency within the international finance centre (IFC) that will be housed at the special economic zone of the Gujarat International Finance Tec-City — or Gift City — that New Delhi and Gujarat want to design as a global financial services hub to win back some of the financial businesses that have migrated to Dubai and Singapore.
"To begin with, regulators will explore what all activities can be carried out within the existing laws and without amending Fema (Foreign Exchange Management Act). The next step would be to roll out regulations for a full-blown IFC," said a person, who attended the meeting.
"Even though there are objections from a few quarters, we expect the finance minister will set the tone for this in the Budget document," said the person, who attended the meeting. The finance ministry wants the centre to be operational by April 1, said another person who participated in the discussions.
Originally, an IFC — an offshore centre with different tax, currency and securities regulations — was envisaged in Mumbai, the country's financial capital. A consultant, hired by the previous government to prepare a road map, had suggested an integrated financial market by dismantling the walls that it felt were artificially separating markets such as bonds, currencies and derivatives. RBI, known for its financial conservatism, was, at least then, a reluctant partner to the ambitious plan which was subsequently shelved after the 2008 global financial meltdown.
"The commerce ministry had given the go-ahead in December 2011 subject to operational guidelines from regulators. The inprinciple consent from regulators has now been achieved...the central bank will also discuss the matter with leading banks; some discussions have already taken place. The regulators may also have to set up offices in the IFC," said an official of the Gujarat government. According to him, it would be a misleading debate to view the IFC project as a Maharashtra versus Gujarat story as there is room for offshore centres in other states and the government, if it chooses to, can change the SEZ law to allow more IFCs.
"Please understand that an IFC requires first-class infrastructure without which no global bank will set up either base or trading desk or back office," he said. Trading of India's leading stock index and currency futures (including non-deliverable forwards) — where the underliers are rupee and rupee securities — have flourished in Singapore and Dubai, thanks to lower cost, easier rules and differences between past governments and regulators over the pace of financial sector reforms. While some disagreements still prevail, a stronger Centre that has positioned itself in favour of quicker reforms coupled with leads taken by Singapore and Hong Kong may create a consensus among various decision-makers.
"We will come out with rules for stock exchanges and brokers in SEZ. The basic structure is already there. We have to say that these regulations will apply to SEZ also with some modifications. For instance, there can be currency settlement in US dollar instead of rupee," said a regulatory official. "Even organisations like GIC and other global reinsurance firms can set up bases. Today, they cut deals in destinations such as Malaysia due to operational freedom and softer tax-...Brokers, reinsurance players, stock exchanges and banks would be the starting point. Later there could be establishment of trusts," said an industry official.
While Gift City is spread over 886 acres, the SEZ would be housed in 261 acres. Out of the total 12.6 million sq feet sold in the city (which is located close to the Ahmedabad airport), 0.5 million sq ft is within the SEZ. The demand for SEZ space is expected to grow once the rules are in place, said the state official.