The document discusses the Indian government's proposal to set up financial services special economic zones (SEZs) in India. It notes that the finance minister proposed this idea before the 2015 budget to create high-value jobs and connect India to global financial markets. Financial SEZs would offer tax breaks and exemptions from certain taxes to attract financial firms. They would allow activities like brokerage, investment management, and establishing international exchanges for trading various assets. The government hopes this can help develop India as a global financial center and reduce offshore trading of the rupee. One such proposed financial SEZ is the Gujarat International Finance Tec-City (GIFT) project in Gujarat.

1. FINANCIAL SEZ’s
An Analysis
3/2/2015
KarvyComputershare Private Limited
Narendersharma

2. Before the kick start of Union Budget 2015-16 the finance minister Mr. Arun Jately has
proposed with an idea of setting up financial services SEZs in India and sought comments on the
proposal. A proposal to set up financial services SEZs is on the agenda for this budget session.
In a fast developing country like India a policy intended to make SEZs an engine for economic
growth supported by quality of infrastructure complemented by an attractive fiscal package,
both at the centre and state level, with minimum possible regulation.
With finance system determines the efficient use of capital, a well defined institutional
framework and less cumbersome regulatory regime would definitely improves the financial
condition of India.
The Bulk of global financial services production takes place in a few International Financial
centers like New York, London, Singapore, Hong Kong and Tokyo.
The problem of India Capital controls, financial regulations and taxation have lead to a flight of
trading in the rupee and NIFTY out of the country. Roughly half of the global trading in the
rupee and in the NIFTY is taking place outside India.
India is a larger user of financial services, by virtue of a large and growing GDP and a high rate
of investment and savings. At present, India is consuming financial services produced offshore
as well as onshore.
The objectives of Finance SEZs are being
 To create high value jobs by having of production of financial services
 To create an avenue into financial globalization
 To implement the new projects

3. Facilities & Incentives to Units in SEZ in India
 Duty free import/domestic procurement of goods for development, operation
and maintenance of SEZ units
 100% Income Tax exemption on export income for SEZ units under Section 10AA
of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of
the ploughed back export profit for next 5 years.
 External commercial borrowing by SEZ unit’s up to US $ 500 million in a year
without any maturity restriction through recognized banking channels.
 Exemption from Central Sales Tax
 Exemption from Service Tax
 Single window clearance for Central and State level approvals.
 Exemption from State sales tax and other levies as extended by the respective
State Governments
Procedural Issues
Since the rupee is not convertible, offshore trading in rupee happens by way of
derivatives.
In other words, foreign investors place bets on rupee movements in Singapore or the
UK and settle the transaction in dollars, although the currency risk is that of the rupee.
These bets impact the spot exchange rate as most of the players are multinational banks
which can arbitrage between India and overseas.
The central bank too has cited the growing non-deliverable market as one of the triggers
for rupee volatility.

4. Proposedbenefits to financial SEZs in India
 Give finance firms in these SEZs tax breaks.
 Exempt them from securities transaction tax, commodities transaction tax and
service tax
 Set up separate arbitration system, for dispute resolution with expertise to solve
contractual disputes
 Review trade regulations between finance SEZs and mainland
 Make contracts in these zones free from capital control
 Allow complete capital account convertibility in these zones
 Firms in these zones could be allowed to set up international exchanges for
trading in equities and currencies, and bullion or commodity exchanges.
Scope of Activities
 Engage in Brokerage
 Investment Management
 Merchant Banking
 Custodian service
 Establishing clearing and settlement facilities

5. ‘GIFT’ a Modi Initiative
GIFT (Gujarat International Finance Tech-City) is conceptualized as a global Financial
and IT Services hub, a first of its kind in India, designed to be at or above par with
globally benchmarked financial centres such as Tokyo, Shanghai, La Defense, Paris,
London Dockyards etc.
GIFT Master Plan facilitates Multi Services SEZ with IFSC (International Financial
Services Centre) status, Domestic Finance Centre and associated Social infrastructure.
“GIFT SEZ Limited” has been formed by GIFTCL for development of Multi Services
SEZ
NSE on the Highway
National Stock Exchange (NSE), India’s leading stock exchange, intends to establish an
international exchange in GIFT SEZ area
GIFT SEZ and NSE signed the Memorandum of Understanding (MoU)
NSE intends to develop an international standard exchange providing electronic
platform for facilitating trading, clearing and settlement of securities, and shall explore
possibility of starting trading facilities in different asset classes like equities, interest
rates, currencies, among others and their derivatives subject to fulfillment of existing
laws and guidelines as are being issued by the government and the regulators.
The exchange can cater to international and other investors willing to operate from
GIFT SEZ-IFSC in GIFT City.

6. Key Notes:
Firms in these zones could be allowed to set up international exchanges for
trading in equities and currencies, and bullion or commodity exchanges.
Government of India initially decided to begin with activities possible with
existing law will be explored