NEW DELHI: Investors or funds at GIFT City in Gandhinagar, Gujarat, have brought in $102 million in foreign direct investment (FDI) to the country so far, data from the Department for Promotion of Industry and Internal Trade (DPIIT) shows.
Most of this investment has come in 2022-23. During the same year, $17 billion in FDI came from Singapore, and $6 billion each from Mauritius and UAE.
GIFT City, which is the only international financial services centre (IFSC) in India, is treated as an offshore jurisdiction, and therefore, when funds located in Gift City invest in any other part of the country, the same is treated as FDI.
The Gift City has been promoted as an alternative to jurisdictions like Singapore, Mauritius, the Netherlands and the UAE, which have accounted for almost 60 per cent of the FDI in India since 2000. However, the $102 million FDI number from Gift City is far from impressive, even if one considers only two years since the guidelines for relocation of offshore funds were put in place.
Experts say that Gift City has emerged as an alternative to Mauritius and Singapore as a fund jurisdiction for investments in India, but there are not enough incentives for funds that already have bases in countries like Mauritius and Singapore to shift to IFSC at present.
“IFSC though scores well on FATF (when compared to Mauritius) and costs (when compared to Singapore), foreign investors who are familiar to investing in India through Mauritius or Singapore or any other jurisdiction do not find incentive to making an investment in IFSC,” says Yashesh Ashar, Partner, Illume Advisory.
He also pointed out that several foreign financial institutions looking to set up investment entities in Gift City have hit the pause button pending negotiations of India’s terminated bilateral trade agreements with 58 countries even as Indian funds are exploring opportunities in these centres.
The government has been trying to attract funds to Gift City through many concessions and exemptions, but those efforts have not borne fruit going by the FDI numbers from Gift City. This year the government amended the tax rules, bringing foreign investors under the ambit of Angel Tax, which is the tax unlisted companies pay on the issuance of shares to investors at a valuation higher than the fair market value.
However, investors from 21 countries are exempted from the Angel Tax. Curiously, countries like Singapore, Mauritius, the Netherlands and the UAE – which are traditionally big contributors to FDI in India -- are not on the list of the 21 countries.
Experts believe this move could give a push to the relocation of offshore funds looking to invest in India to Gift City since funds regulated under IFSCA have been exempted from Angel Tax.
However, Yashesh Ashar says that considering start-ups registered with DPIIT are exempt and flexible valuation norms such as price matching etc, are proposed, this change may not have a tangible impact on the decision-making for the choice of jurisdictions for funds.