NSE plans international exchange at GIFT SEZ

Gandhinagar: National Stock Exchange of India Ltd (NSE) has announced it is setting up an international exchange in a special economic zone (SEZ) being developed as the country’s first International Financial Services Centre (IFSC) by Gujarat International Finance Tec-City Co. Ltd (GIFT).

The announcement comes ahead of the Union Budget which is expected to detail guidelines for IFSCs, which could facilitate offshore banking, currency convertibility and incentives to insurance and other financial services companies to operate from the SEZ, Mint reported on 12 January.

NSE’s agreement with GIFT, signed on Thursday, involves the setting up of an international bourse that will offer trading in equities, interest rates and currencies among other asset classes.

This comes around a month after BSE Ltd signed a similar deal with GIFT, entailing an investment of Rs.150 crore.

The two exchanges will work towards moving the centre of gravity of key trading segments back to India. “In the absence of an IFSC in India, India has lost roughly 50% market share in the two most important India-related products: with rupee and Index being mostly traded on foreign platforms instead of onshore trading in such products,” a GIFT statement released on 12 January had said.

Chitra Ramkrishna, managing director (MD) and chief executive officer (CEO), NSE, said: “We at NSE would like to be a part of the vision of the government to develop an international financial services centre in India. This will help the nation compete with other similar destinations. This will allow Indian and international entities to deal in financial products and services from India, making GIFT-India as one of the foremost international financial centres in the world.

Ramkrishna said details like investment amount or the scale of operation will be worked out soon, with the new rules to finance SEZs expected soon.

GIFT, one of Prime Minister Narendra Modi’s pet projects when he was chief minister of Gujarat and now projected as the first of 100 smart cities the government plans to build across India, is seen as India’s reply to the international finance centres of Dubai, Singapore and Hong Kong. It is estimated that GIFT will provide 500,000 direct, and an equal number of indirect, jobs, which would require 62 million sq. ft of commercial, residential and social facilities, with a total investment of about Rs.78,000 crore over the next 10 years.

GIFT Co. is a 50:50 joint venture (JV) between Infrastructure Leasing and Financial Services Ltd (IL&FS) and the state government-owned Gujarat Urban Development Co. (GUDC). Of the 880 acres allotted to GIFT City, about 250 acres is earmarked for the IFSC. This will be treated as an SEZ.

Ramakant Jha, MD and group CEO, GIFT City, said, “We welcome NSE at GIFT City to establish an international exchange. With the operating guidelines being issued by the ministry of finance, government of India, for IFSC, our aim is to make GIFT at or above par with other globally benchmarked financial centres. This MoU (memorandum of understanding would help in attracting various international services and, thereby, create an eco-system for operation of an international exchange in the country.

The government, in consultation with the Reserve Bank of India, may also have to tweak the Foreign Exchange Management Act (FEMA) to accommodate the special needs of an IFSC.

The National Institute of Public Finance and Policy (NIPFP) submitted a concept note to the ministry of finance on 6 February detailing the objectives and the policy framework for setting up finance SEZs in India. The 21-page report, titled Policy Framework for Finance SEZ, highlights the steps and short-term actions that may be adopted to start a finance SEZ.

It suggests that till the time the Indian Financial Code (which would provide a comprehensive framework for a world-class financial system) is not enacted, a specialized law for a financial SEZ can be passed. Another alternative, it says, is to notify new guidelines as per the SEZ Act, 2005, as applicable to a finance SEZ.

The rationale for such a project, the concept note says, is the fact that an estimated Rs.1,334 crore per day, or Rs.2 trillion per year, for trading in rupee derivatives trading, is going to locations outside India. The report proposes exchanges based in such SEZs can compete for global customers with the DGCX in Dubai or the SGX in Singapore.

The report suggests that taxation inside a finance SEZ has to be rationalized. GIFT’s Jha is also hoping for an alternative dispute resolution system, similar to the special court in Dubai financial service centre.

Pradip Shah, who runs IndAsia, a corporate finance, private equity, and investment advisory, says that IFSCs will give a huge boost to the nation’s gross domestic product.

He said that 12-13% of the UK’s gross domestic product (GDP) comes from financial services, the highest such measure in all G7 economies. Ireland set up an IFSC in 1987 and it employs 32,700 people directly and contributes 7.8% to the Irish GDP, added Shah, who was the founder-managing director of Crisil Ltd, India’s first and largest credit rating agency. He also assisted in the founding of Housing Development Finance Corp. Ltd (HDFC), India’s first retail housing finance company, in 1977.

The US offers Delaware as a convenient location for registering firms—945,000 are registered there, generating revenues of such a scale that Delaware levies no sales tax. Switzerland, according to Shah, manages $2.1 trillion of offshore money; Britain and its Channel/Caribbean islands manage $1.9 trillion, while Singapore has $1.3 trillion of offshore assets under its care.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.