Singapore and Hong Kong have become centers of financial services in Asia. The establishment of GIFT-IFSC and the subsequent devolution of powers to a unified regulator, the International Financial Services Centers Authority (IFSCA), was a key step in the right direction to develop India as a hub global finance.
In a short time, GIFT-IFSC has become an important global financial center. While IFSCA has taken many steps to build a vibrant global financial center, several coordinated steps are needed across the ecosystem to become a global investment hub.
Let’s focus on the steps needed to make the IFSC a global investment hub.
Leverage the domestic market and motivate investment managers
The majority of REIT/FDI investments exceeding trillions of dollars in India are channeled from global financial centres. We need to lay down the red carpet for global investors to step into the IFSC.
The recent IFSCA initiative on the regulation of fund managers vis-à-vis funds is a step in the right direction. We need to develop a framework like open-end companies in Singapore to provide operational flexibility and profitability to global investors.
We need an unambiguous tax policy, the absence of which has deterred REITs from setting up in India. Preferential access for outgoing investments from the domestic fund management market may be offered to attract investment managers.
Developing an ecosystem for investment managers
We need to leverage our pool of resources among accountants, fund administrators, lawyers, consultants and administrators for fiduciary oversight to create a plug-and-play ecosystem. Our KPO industry already serves the global investment management community.
Financial services require an appropriate talent pool. We need to attract talent from other jurisdictions to become a regional power. Appropriate living infrastructure, long-term work permits, competitive tax policies, etc., are necessary to attract global talent. Given Gandhinagar’s social and cultural infrastructure, it might be worth considering a policy of minimum time spent at IFSC in the initial phase.
Appropriate involvement of educational institutions will be necessary to ensure a steady supply of talent. Existing employees will need skills upgrading and exposure to global best practices. The recent announcement of the budget for the creation of foreign universities within the IFSC is another step in the right direction.
Ready for the future
Fintechs are disrupting financial services. Quantitative and passive investing disrupts active investing. ESG has become a standard in the investment process. Sustainability is the new buzzword in the world of finance. IFSCA needs to focus on emerging trends and disruptors to be ready for the future. We need to attract global financial institutions and investment managers with an appropriate ecosystem for sustainability hubs, green finance, ESG analysis, etc. investors. Competing with peers on emerging trends will be better than on established trends.
rule of law
Despite the cancellation of many unnecessary laws, the compliance burden is heavy with the applicability of multiple laws to a single activity.
We must compare ourselves to our peers and provide a superior rule of law to investment managers. IFSCA has established a regulatory framework through extensive collaboration with industry and global peers. However, beyond the IFSCA, there is a need to streamline rules and regulations, in the area of taxation, arbitration, commercial dispute resolution, etc.
Our aim should be to ensure a regulatory framework in which global investors will not mind India as an arbitration center / are willing to settle disputes under Indian laws.
Innovation and development of financial markets
Although there are no intellectual property rights to financial innovations, we have been slow to encourage financial innovation. Our regulatory approach resembles that of legendary fly-half Sunil Gavaskar: don’t take chances, avoid defeat. Now is the time to go Virendra Sehwag style – take risks and aim for victory.
A vibrant internal market is a prerequisite for emergence as a global financial centre. Our financial market infrastructure and supervision is comparable to that of global markets. Product innovation will help deepen markets.
India had a small opening in Y2K to enter the IT services space. We have used this opening to become a dominant player in global IT services. The transition was not instantaneous. It required sustained efforts on the part of IT players and the government.
We need to replicate the success of IT services in financial services. The establishment of a unified regulator in the form of IFSCA is a step in the right direction to make India a global financial hub. However, it needs sustained support from the government and the domestic ecosystem to ensure that India provides operational flexibility and cost-effectiveness to attract global investment management companies from other jurisdictions.
(The author is managing director of
asset management company)