The Reserve Bank of India (RBI) has allowed resident Indians to open foreign currency accounts at the Gujarat International Finance Tec-City, or GIFT City, for a wider usage. Till now, foreign currency accounts in the finance hub could only be used for investing in overseas-listed securities and for paying tuition for foreign universities at GIFT City.
In a circular late on July 11, the RBI has allowed Indian investors to use GIFT City as a route for more overseas spending and investments. The relaxation of norms will help banking and financial services in the finance hub, such as payments and insurance.
Indians are allowed to remit up to $250,000 overseas each year for education and medical expenditure as well as certain kinds of investments.
GIFT City, launched in the western state of Gujarat by Modi in 2011, has been planned as an alternative to regional financial centres like Dubai. It offers easier regulations compared with the rest of India but has seen a slow pick up in interest from foreign investors.
Impact of RBI’s Decision to Allow Forex Accounts in GIFT City:
Narinder Wadhwa, managing director, SKI Capital Services, said, “The Reserve Bank of India’s (RBI) decision to allow forex accounts in the Gujarat International Finance Tec-City (GIFT City) into which money can be remitted for all purposes permitted under the Liberalised Remittance Scheme (LRS) is a significant step towards enhancing India’s international financial ecosystem.”
According to him, here are some key points of the impact:
1. Boost to GIFT City: This move will bolster GIFT City’s status as an international financial hub, attracting more global financial players and boosting overall economic activity in the region.
2. Ease of Transactions: It provides greater flexibility for Indian residents to manage their foreign exchange transactions, facilitating seamless remittances for permissible purposes such as education, medical expenses, and investments.
3. Attraction of Foreign Investments: By simplifying the process and enhancing the financial infrastructure, GIFT City can attract more foreign investments, which can contribute to economic growth and job creation.
4. Improved Financial Services: This move can lead to the development of sophisticated financial products and services tailored for both domestic and international markets, leveraging GIFT City’s regulatory advantages.
5. Regulatory Clarity: Providing clear guidelines under the LRS for remittances to GIFT City accounts ensures regulatory transparency and helps in maintaining compliance with the RBI’s norms.
6. Promotion of Financial Inclusion: By allowing a broader range of remittances, the RBI is promoting financial inclusion, enabling a larger section of the population to participate in global financial markets.
“Overall, this decision is poised to make GIFT City a more attractive destination for financial transactions and investments, aligning with India’s broader goal of becoming a major player in the global financial landscape,” Wadhwa added.
Suresh Swamy, partner, PwC in Mumbai, said it will give India visibility over how money remitted overseas is being deployed, as authorities can seek data more easily.
“Financial services activity which was getting routed through other jurisdictions such as Singapore or Dubai can now be done through International Financial Services Centre,” he said.
(With Inputs from Agencies)
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