An expert committee report focusing on attracting Indian startups to the GIFT IFSC has suggested that investments in securities listed at the GIFT IFSC exchanges by mutual funds (MFs) and alternative investment funds (AIFs) should be exempt from the international investment limits imposed by the Reserve Bank of India (RBI).
According to the Foreign Exchange Management Act (FEMA), GIFT IFSC is regarded as a foreign entity, and the RBI sets boundaries for foreign investments by MFs and AIFs. Currently, investments are restricted at $7 billion for MFs and $1.5 billion for AIFs. These limits were reached in 2022 and have not been raised since.
The report stated that since GIFT IFSC is considered a ‘person resident outside India’ as per FEMA, investments by AIFs and Mutual Funds in GIFT IFSC are unfeasible. This would withhold Indian capital from startups in GIFT IFSC and preclude Indian residents from participating in their public offerings on exchanges situated in GIFT IFSC.
Furthermore, the expert committee has advocated for amendments in the Liberalised Remittance Scheme (LRS) to encourage greater investor engagement in direct equity investments in GIFT City. At present, investors can remit up to $250,000 each financial year for various purposes, encompassing investments, gifts, donations, medical treatment, and studies overseas.
The report recommends that the LRS limit, specifically for investment in IFSC, should not be merged with other activities. Instead, it should be classified under a separate category with a higher investment threshold than the current $250,000 per financial year.
Such a proposed modification would significantly expand the investment possibilities for resident individuals, including high and ultra-high net worth individuals, and would also enhance retail investor participation with regard to securities issued in IFSC, the report added.
First Published: Aug 25 2023 | 8:09 PM IST