1. The IFSC can become an important gateway for international investors and businesses to access and participate in the India growth story. This role is currently played by other regional financial centres in Asia, the Middle East, and Europe.
2. Because of its strategic location, the Indian IFSC can further expand to become the offshore financial centre for countries in South Asia and the Mekong delta region.
3. As a greenfield IFSC and with a new regulatory body, there is also an opportunity for the IFSCA to set a new global benchmark by providing an environment that fosters innovation in financial products and services and the development of financial technology solutions on the back of a progressive regulatory framework and a conducive work environment.
4. The terms of reference of the Committee was to create a roadmap for the development of international retail business in the IFSC. The terms of reference also permitted the Committee to make other suggestions. In view of development of the IFSC, the Committee has taken the liberty to make recommendations that may not strictly be related to retail businesses.
5. The IFSC can aim for the following:
6. There is immediate potential to promote international retail business in the IFSC, and if done efficiently, it will meet the three key objectives: a) boosting job creation, b) generating additional revenue for India, and c) attracting funds (especially from the Indian diaspora) for building India’s infrastructure.
7. The IFSC with its approach of ‘FinServe from IFSC’ would complement the ‘Make in
8. Inherent advantages for the IFSC
India’ vision of the Government of India (GoI).
8.1. The inherent advantage of an IFSC is that the greenfield regulator can set new benchmark in defining a robust yet light-touch regulatory framework.
8.2. The IFSC can provide access to strong India hinterland opportunities.
8.3. The IFSC can tap into the strong Non-resident Indian (NRI) retail investors base and provide access to an efficient English-speaking talent pool.
8.4. Companies set up in the IFSC will be able to provide comprehensive, high quality financial services at a globally competitive cost to their customers.
8.5. Indian companies can tap into the opportunity of listing their products such as American Depository Receipts (ADRs)/ Global Depository Receipts (GDRs), Masala Bonds etc. in the IFSC exchanges, rather than going overseas, at a relatively low cost.
8.6. The IFSC can also become a significant capital-raising platform for neighbouring countries, such as Sri Lanka, Bangladesh, Nepal, Myanmar, etc. and for listing their companies on an international exchange.
9. Key Success factors for the IFSC
9.1. The IFSCA should aim to benchmark itself with the best-in-class jurisdictions and balance the regulatory touch with ease of doing business. Living, learning and leisure at the IFSC should be comparable to those in developed centres like Dubai and Singapore in order to attract and retain talent which would be a source of competitive advantage.
9.2. The IFSCA should perform the dual role of a regulator and of business development.
9.3. The IFSCA should act as a “Unified Regulator” in form and spirit – independent of onshore regulators.
9.4. It should adopt a new regulatory framework that is light-touch and principle-based. However, the IFSCA should also be mindful that there is no impasse of decision-making while transitioning to the new independent regulatory regime.
9.5. It should actively engage with other International regulators and position the IFSC in India as a jurisdiction of repute. Reciprocity agreements with host country regulators of important target countries should be explored to facilitate smooth flow of business with those countries.
9.6. It should focus on building the entire eco-system, which is required in the development of a strong IFSC.
9.7. The proposition for the IFSCA should be very simple – Don’t compete, complement and create a niche. The IFSCA should identify unique value propositions to differentiate itself from other offshore jurisdictions.
9.8. The IFSCA should focus on capacity building – infrastructure, institutional and talent to be future ready. The aim should be to create a best-in-class institution and build a state-of-art infrastructure that acts as a magnetic force to attract people to the IFSC.
9.9. The IFSCA should focus on technology and aim to go completely digital with its regulatory framework and position itself as technology savvy, digitally driven Financial Markets Hub.
9.10. The IFSCA should build an aggressive global outreach and engagement program to create awareness, attraction and brand for the IFSC. It should take up marketing initiatives with Indian consulates, embassies, and NRI associations in targeted markets as well as engage in knowledge disseminating programs for targeted audiences to promote the IFSC. This should include sharing of detailed/ granular-level information with customers to help them invest in various products suitable to them.
9.11. The speed of go-to-market initiatives are important for the success of any business. The IFSCA should therefore adopt a ‘use and file’ approach to encourage firms to innovate, improvise and launch insurance products faster.
9.12. The IFSCA should support and encourage the formation of industry associations as a platform for engagement and market feedback. This will create an environment of trust and partnership.
9.13. Ideally for most investors in the IFSC markets, ‘withholding tax should be the final tax’ without any need for them to file income-tax returns. For capital gains tax purposes, there should be a system for withholding taxes on net capital gains.
10. Banking Sector – Recommendations
10.1. Retail participation:
10.2. Corporate business:
10.3. Liquidity Ratios:
Remove the requirement to maintain liquidity ratios [Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)].
10.4. Foreign Banks not having presence in India:
Foreign Banks not having presence in India (or having only a representative office in India) should be permitted to setup an IBU in the IFSC.
11. Insurance Sector – Recommendations
11.1. Life Insurance:
11.2. Health insurance:
11.3. Non-life insurance:
11.6. Other suggestions
12. Asset management and Capital Markets – Recommendations
12.1. IFSC exchanges:
Provide ‘Foreign’ depository status to branches set up by Indian/ Foreign depositories in the IFSC.
12.4. Asset and Wealth Managers
12.5. Other suggestions
13. Dispute Resolution
13.1. Conflicts, grievance and disputes are inevitable in a commercial contract. As the IFSCA aims to be a jurisdiction of international repute, it would be necessary for it to focus on implementing a dispute resolution mechanism, that is independent, time-bound, digitally accessible and cost effective for participants. Fast-track hearings and finality of proceedings should be its cornerstone.
13.2. The various redressal systems suggested herein include Customer Grievance Redressal Cell within the service provider, an Office of Ombudsman at the IFSCA, a Complaint Redressal system at the IFSCA, Mediation, Arbitration and an International Commercial Court (ICC).
13.3. Online Dispute Resolution should be the preferred method for the resolution of disputes, particularly small and medium-value cases.
14. Support Services in the IFSC
14.1. It is recommended that the IFSCA explicitly lists the support services that fall within the definition of ‘financial service’ under the IFSC Act, 2019 on its website. For those support services that do not currently fall within the definition of the term ‘financial service’, it may request the Central Government to notify those services as ‘financial service’.
14.2. All IFSC units are entitled to a ten-year tax holiday period; therefore, this suggestion should be enabled with appropriate safeguards.
14.3. Increase in support services entities in the IFSC will not only lead to job creation but also lead to development of the entire ecosystem around the IFSC.