Cabinet approves unified regulator for IFSC’S
07, Feb 2019
Prelims level : Economy Mains level : Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
- The Cabinet has approved the setting up of a unified authority that would regulate all the financial services in International Financial Services Centres (IFSC), such as the Gujarat International Finance Tec-City (GIFT) in Gandhinagar.
- For this purpose, International Financial Services Centres Authority Bill, 2019 to be introduced.
- Gujarat International Finance Tec-City Co. Ltd is being developed as the country’s first international financial services centre (IFSC).
- The SEZ Act 2005 allows setting up an IFSC in an SEZ or as an SEZ after approval from the central government.
What is an IFSC?
- An IFSC is thus a jurisdiction that provides world class financial services to non-residents and residents, to the extent permissible under the current regulations, in a currency other than the domestic currency (Indian rupee) of the location where the IFSC is located
- An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders. London, New York and Singapore can be counted as global financial centres.
- Many emerging IFSCs around the world, such as Shanghai and Dubai, are aspiring to play a global role in the years to come. An expert panel headed by former World Bank economist Percy Mistry submitted a report on making Mumbai an international financial centre in 2007.
- However, the global financial crisis that unfolded in 2008 made countries including India cautious about rapidly opening up their financial sectors.
What are the services an IFSC can provide?
- Fund-raising services for individuals, corporations and governments
- Asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds
- Wealth management
- Global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms.
- Global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching
- Risk management operations such as insurance and reinsurance
- Merger and acquisition activities among trans-national corporations
Why an IFSC in India?
- An IFSC seeks to bring to India, those types of financial services and transactions that are currently carried on outside India by overseas financial institutions and overseas branches/ subsidiaries of Indian financial institutions.
- The policy objective behind establishing an IFSC in India is providing a platform for international financial services to operate from and to specialize in exports of high value-added International Financial Services.