Foreign FIs halt plans to set up investment firms within IFSCs

indian international financial services centres, yashesh ashar, european union, bhuta shah & co., IFSC

Several foreign financial institutions looking to set up investment entities in Indian International Financial Services Centres (IFSCs) 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.

A European fund that was looking to set up a base in India via IFSC stumbled into a roadblock after its legal advisors pointed out that India doesn’t have trade treaties in place with several counties.

The entity is now setting up an India-focused fund with a pooling vehicle being set up in Luxemburg, a person with direct knowledge of the matter told ET.

An IFSC is an offshore financial centre that facilitates flow of various financial products and services across countries for customers outside the financial system of the host country. India has so far developed one such centre, GIFT City, in Gandhinagar.

“Many foreign financial institutions are yet to evaluate IFSC and empanel it in their list of approved jurisdictions,” said Yashesh Ashar, partner at tax advisory firm Bhuta Shah & Co. “Absence of trade agreements is deterring many financial institutions from making direct investments in funds set up or proposed to be set up in India.”

indian international financial services centres, yashesh ashar, european union, bhuta shah & co., IFSC

In March 2017, the government had terminated bilateral trade investment treaties with 58 countries, including 22 European Union countries.

Trade pacts tend to give protection to foreign companies’ domestic assets, including copyright and intellectual properties.

Generally, foreign companies are more bothered about trade pacts than, say, financial investors or funds. Yet, this is one of the reasons why foreign funds are treading cautiously when it comes to setting up shops in IFSCs, industry insiders said.

While foreign funds are putting their plans on hold, many Indian funds or funds backed by Indian banks, financial institutes and Indian companies are exploring advantages offered by these centres as an opportunity.

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