The Reserve Bank of India (RBI) has expanded the scope of remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS), allowing Indian residents to open foreign currency accounts in Gujarat International Finance Tec-City (GIFT City).
The RBI decided to allow authorised persons to facilitate remittances for availing financial services or financial products as per the International Financial Services Centres Authority Act, 2019 within IFSCs.
This move is expected to boost business prospects for this financial hub, which was pushed by Prime Minister Narendra Modi.
GIFT City, launched in the western state of Gujarat by PM Modi in 2011, was designed as an alternative to regional financial centres like Dubai. It offers easier regulations compared to the rest of India but has seen a slow pick-up in interest from foreign investors.
The latest changes, announced by the RBI in a circular late on Wednesday, allow Indian investors to use GIFT City as a route for more overseas spending and investments.
Indians can remit up to $250,000 overseas each year for education, medical expenses, and certain kinds of investments.
Previously, 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.
The new relaxation of norms will benefit banking and financial services in the hub, such as payments and insurance.
The biggest beneficiaries will be banks. Jaiman Patel, a partner at EY India told Reuters that the move will “open up the window” for life insurance companies.
Suresh Swamy, a partner at PwC in Mumbai, said that it will give India visibility over how money remitted overseas is being used, 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,” Swamy told Reuters.
Over the last year, Indian authorities have made several decisions to boost activity at GIFT City. These include allowing the listing of Indian companies and permitting the wealthy to open family investment funds.
