The Reserve Bank of India has made a significant move that could potentially attract more investments in the International Financial Services Centre at GIFT City, Gujarat. As per reports, RBI clears the way for IFSC investments through Liberalised Remittance Scheme route. Investors will now have more opportunities to channel their funds into the IFSC.
Previously, the LRS route was not applicable for investments in IFSCs. However, with this new development, investors can now use the LRS route to invest in IFSCs, which could attract more foreign investments into the country.
Indian residents can now remit funds to IFSCs under the LRS framework and open a Foreign Currency Account (FCA) in IFSC. Previously, unutilized funds in FCA for up to 15 days had to be repatriated to domestic rupee accounts.
However, a new RBI circular allows unutilized funds to be repatriated and surrendered to an authorized dealer bank within 180 days. Banks can now offer interest-bearing accounts to residents, which will help them raise low-cost funds and garner more stable deposits. The new norms align IFSC at GIFT City with other international financial centers.
According to Yashesh Ashar from Illume Advisory, the current circular removes only the 15-day repatriation requirement from the February 2021 circular.
The existing circular still restricts the end use of remitted money to investments in securities in IFSC, not for other purposes like education or medical needs allowed under the LRS framework.
The $250,000 limit for investment under LRS for both IFSC and other countries remains unchanged. As a result, residents can still remit funds to foreign currency accounts on an ad hoc basis without exceeding their LRS limit.
However, the increased TCS on foreign remittances under LRS and the inability to settle domestic transactions using IFSC foreign currency accounts remain obstacles.
As RBI clears the way for IFSC investments through Liberalised Remittance Scheme route, it could boost the financial sector in India by providing a more conducive environment for businesses to thrive.
The IFSC at GIFT City has the potential to become a hub for international finance, and with the lifting of this roadblock, it could attract more companies and financial institutions to set up shop there.