Singapore and Hong Kong have emerged as financial services hubs in Asia. Setting up the GIFT-IFSC and subsequently vesting the powers in a unified regulator, the International Financial Services Centres Authority (IFSCA), was a key step in the right direction to developing India as a global financial hub.
In a short time, the GIFT-IFSC has emerged as an important global financial centre. While the IFSCA has taken numerous steps to build a vibrant global financial hub, several coordinated steps are required across the ecosystem to be a global investment hub.
Let us focus on the steps needed to make the IFSC a global investment hub.
Leverage the Domestic Market and Incentivise Investment Managers
The majority of FPI/FDI investment exceeding trillion dollars in India is routed from global financial centres. We need to lay the red carpet for global investors to set up operations in IFSC.
The IFSCA’s recent initiative on regulating fund managers vis-a-vis funds is a step in the right direction. We need to develop a framework like variable capital companies in Singapore to provide operational flexibility and cost efficiency to global investors.
We need to have an unambiguous taxation policy, the absence of which has deterred FPIs from setting up shop in India. Preferential access for outbound investments from the domestic fund management market can be offered for attracting investment managers.
Develop an Ecosystem for Investment Managers
We need to leverage our pool of resources across accountants, fund administrators, lawyers, consultants, and directors for fiduciary oversight to create a plug-and-play ecosystem. Our KPO industry already serves the global investment management community.
Talent Pool
Financial services require an appropriate talent pool. We need to attract talent from other jurisdictions to emerge as a regional powerhouse. Proper living infrastructure, long-term work permits, competitive taxation policies, etc., are required to attract global talent. Considering the social and cultural infrastructure at Gandhinagar, it might be worth considering a policy of minimum spending of time at IFSC in the initial phase.
A suitable involvement of teaching institutions will be necessary to ensure a regular talent supply. Existing employees will require upgradation of their skills and exposure to global best practices. The recent budget announcement of setting up foreign universities in IFSC is another step in the right direction.
Future Ready
Fin-techs are disrupting financial services. Quant and passive investments are disrupting active investments. ESG has become a norm in the investment process. Sustainability is the new buzzword in the world of finance. IFSCA must focus on emerging trends and disrupters to be future-ready. We must attract global financial institutions and investment managers with an appropriate ecosystem for sustainability hubs, green financing, ESG analytics, etc. We should be able to leverage our strengths in artificial intelligence and machine learning to provide cutting-edge analytics and quant solutions to global investors. Competing with peers on emerging trends will be better than established ones.
Rule of Law
Despite the cancellation of many unnecessary laws, the compliance burden is cumbersome with the applicability of multiple statutes to a single activity.
We must benchmark ourselves with our peers and deliver superior Rule of Law to investment managers. IFSCA has built a regulatory framework through extensive collaboration with Industry and benchmarking global peers. However, beyond IFSCA, there is a need to streamline rules and regulations, in the field of taxation, arbitration, commercial dispute settlement, etc.
Our aim should be to ensure a regulatory framework whereby global investors won’t mind India as an arbitration centre / are willing to settle disputes under Indian laws.
Innovation and Development of Financial Markets
Though there are no intellectual property rights on financial innovations, we have been lagging in encouraging financial innovation. Our regulatory approach is like legendary opening batsman Sunil Gavaskar: don’t take risks, avoid defeat. The time has come for transition to the Virendra Sehwag style – take risks and go for a win.
A vibrant domestic market is a prerequisite to emerging as a global financial hub. Our financial market infrastructure and supervision are on par with global markets. Product innovation will help deepen the markets.
India had a small opening in Y2K to enter the IT services space. We utilised that opening to emerge as a dominant player in global IT services. The transition was not instant. 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. Setting up a unified regulator in the form of IFSCA is a step in the right direction to making India a global financial hub. However, it needs the sustained support of the government and the domestic ecosystem to ensure that India provides operational flexibility and cost efficiency to attract global investment management firms from other jurisdictions.
(The author is managing director at
Asset Management Company)
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