India continues to remain an attractive investment hot-spot among emerging nations. But ironically, most of the international transactions are still done in financial centers located in Singapore and Dubai. This is because India still lacks an International Financial Centre (IFC). In a move that can pave the way for a global financial hub in India, Securities and Exchange Board of India (SEBI) has approved a framework for IFCs.
The guidelines provide for subsidiaries of both domestic and foreign stock exchanges to set up shop in the country and also allow the issue of depository receipts, debt securities, currency & interest rate derivatives, index-based derivatives and other securities by companies incorporated outside India. To provide an enabling environment, SEBI in addition to extending tax concessions has also relaxed the pricing formula for financial institutions in the conversion of stressed loans into equity. Apart from this, the listing and trading of municipal bonds known as 'muni bonds' will be allowed for the first time that will aid in financing the government's smart-city plans. The IFC's will primarily cater to non-resident Indians, foreign investors, institutional investors, and resident Indians eligible under the Foreign Exchange Management Act (FEMA).
And to set the ball rolling, the National Stock Exchange (NSE) and BSE have already given their nod to set up international exchanges at the country's first ever IFC, the Gujarat International Finance Tec-city (GIFT). GIFT is the joint venture between the Gujarat government and IL&FS. It remains to be seen whether other regulatory bodies such as the Reserve Bank of India (RBI) and Insurance & Regulatory and Development Authority (IRDA) will also issue guidelines. This in turn would complete the legal framework required and expedite the set up of IFC's in the country.