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The opening of the International Financial Services Centre (IFSC) in GIFT City is a sign of the country’s more liberal take on capital account convertibility, stated the Economic Survey released on January 31.
It is the most important reform the government has done for the capital market players, it added.
V Anantha Nageswaran, the Chief Economic Advisor (CEA) of India released the Economic Survey 2022-2023.
“Globally, International Financial Centres (IFCs) have assumed prominence in the financial services ecosystem primarily because they have contributed enormously to the growth of international financial transactions. These centres have played a pivotal role in accelerating the pace of financial globalisation. In common parlance, an IFC is a jurisdiction with a high concentration of financial institutions such as Banks, Stock Markets & related entities, Insurance firms, Fund Managers, FinTech firms, etc., which offer specialised financial services to non-residents and residents, in an environment that promotes financial innovation and facilitates cross border transactions,” stated the report.
“Given this backdrop, setting up and operationalising India’s maiden IFSC in GIFT City has been a path-breaking financial reform underpinning India’s increasingly liberal outlook towards capital account convertibility,” it added.
India only has a partially convertible capital account, which means that the domestic currency can be converted to a foreign currency only for limited purposes. But to internationalise the rupee and to manage payment disruptions like those caused by the Ukraine-Russia war, the State Bank of India’s economic research wing had suggested that the Reserve Bank of India should make a “conscious effort” to internationalise the rupee. For this, capital account convertibility is needed.
Capital account convertibility also helps Indian investors who are looking to invest abroad and foreign investors who are looking to invest in India.
Also read: Inflation remained range-bound: Economic Survey 2022-2023
To develop the GIFT-IFSC, the government of India set up the first of its kind, unified financial regulator for IFSCs. The International Financial Services Centres Authority (IFSCA) was set up through an Act of Parliament in 2019. “From 1st October 2020, IFSCA assumed the power of four domestic sector regulators, namely RBI, SEBI, IRDAI & Pension Fund Regulatory and Development Authority of India (PFRDAI), in so far as the development and regulation of IFSCs in India were concerned,” stated the Economic Survey.
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