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Foreign Portfolio Investors (FPIs) haven't shown significant interest in the Government's llotment of INR bonds through the Green Tax-Linked Bond Framework (GIFT).

Struggling Attraction of Foreign Portfolio Investors: GIFT City Faces Issues Amid Tax Incentives, With Limited Registrations at 0.9%

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Struggles persist in attracting Foreign Portfolio Investors (FPIs) to GIFT City, despite tax...
Struggles persist in attracting Foreign Portfolio Investors (FPIs) to GIFT City, despite tax incentives, as only 0.9% have registered. The issues stem from infrastructural deficiencies, lack of regulatory clarity, and operational obstacles. The rupee exposure and compliance requirements act as deterrents, yet the investor-friendly policies for NRIs and tax advantages are commended.

Struggling to Compete: GIFT City's Fight for Foreign Portfolio Investment

Foreign Portfolio Investors (FPIs) haven't shown significant interest in the Government's llotment of INR bonds through the Green Tax-Linked Bond Framework (GIFT).

The Gujarat International Finance Tec-City (GIFT City), once hailed as the future of India's financial sector, is currently struggling to attract foreign portfolio investors (FPIs). Despite offering tax incentives and benefits, only a mere 0.9% of the total 11,927 FPI registrations have been made via GIFT City.

With numbers lagging behind established international hubs like Mauritius, Singapore, and Luxembourg, GIFT City faces challenges such as infrastructure gaps, regulatory uncertainties, and operational issues that are discouraging FPIs from investing.

Industry players point out that the lack of adequate infrastructure, workforce, and operational stability hinders GIFT City's attractiveness in comparison to other jurisdictions like Mauritius, Singapore, and Dubai. Many investors are yet to explore this route, with regulatory clarity only emerging after almost a decade.

Puneet Sharma, CEO of Whitespace Alpha, a GIFT-registered fund, acknowledges the lower taxation benefits but notes operational downsides such as registering with the Ministry of Corporate Affairs, filing taxes with the Indian income tax authority, and disparities in banking facilities when compared to international counterparts like Singapore and Dubai.

To address these challenges, GIFT City can implement strategies that emphasize clear, investor-friendly regulations, improved infrastructure, streamlined operational processes, and a robust financial ecosystem.

Technology and Infrastructure

GIFT City's technological infrastructure supports over 100 fintech startups, using advanced technologies like blockchain, AI, and regtech. However, development of world-class physical infrastructure such as office space, connectivity, and smart city amenities is critical to compete with established hubs.

Easing Regulations and Operational Burden

GIFT City should focus on ensuring regulatory consistency, speeding up approval and compliance processes, and extending and expanding tax benefits to cover additional financial products and investor categories. By offering a single-window clearance system and supportive administrative frameworks, bureaucratic hurdles for FPIs and financial firms can be minimized.

Building a Conventional Financial Ecosystem

Attracting a mix of financial services and creating a comprehensive marketplace for FPIs would strengthen GIFT City's position as a global financial hub. Simplifying investment routes, particularly for NRIs, foreign residents, and FPIs, would also boost appeal.

Capitalizing on India's Market Access

Highlighting the strategic advantage of investing through GIFT City as a gateway to India's burgeoning economy can attract FPIs. By aligning regulatory standards and dispute resolution mechanisms with global best practices, GIFT City can position itself as a credible and transparent financial hub.

Although challenges persist, by boosting regulatory transparency and incentives, enhancing infrastructure, streamlining operational processes, and leveraging India's market potential, GIFT City can successfully compete with Mauritius, Singapore, and Dubai, becoming an attractive destination for global investors.

  1. GIFT City's struggle to attract foreign portfolio investors is primarily due to infrastructure gaps, regulatory uncertainties, and operational issues compared to established financial hubs like Mauritius, Singapore, and Dubai.
  2. To make GIFT City more appealing, clear, investor-friendly regulations, improved infrastructure, streamlined operational processes, and a robust financial ecosystem need to be prioritized.
  3. By focusing on regulatory consistency, speeding up approval and compliance processes, and expanding tax benefits, GIFT City can minimize bureaucratic hurdles and implement a single-window clearance system.
  4. Attracting a diverse range of financial services, simplifying investment routes, and emphasizing India's market access as a gateway to its growing economy can make GIFT City a global finance hub of choice for investors.
  5. GIFT City should also look to capitalize on its potential for Defi, exchange, and investment opportunities in the growing field of blockchain technology to stay competitive in the rapidly evolving market.

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