Sebi to discuss regulatory framework for finance sector SEZs

The Securities and Exchange Board of India at its meeting on Sunday is expected to discuss a policy framework for establishing dedicated 'finance SEZs' in the country, as part of a plan to lure back the large-scale overseas trade in rupee and Nifty derivatives.

The SEBI board will be deliberating on a policy framework for developing and supporting international financial centres in the country.

However, in 2013, a standing council of experts on international competitiveness of the Indian financial sector, set up to evaluate the cost of doing business in the Indian market and find ways to improve international competitiveness, suggested revival of the derivatives market.

But, this is a far cry from the Mumbai International Finance Centre (MIFC), proposed by a high powered expert committee headed by Percy Mistry proposed in 2007.

While the finance sector special economic zones (FSEZ) would provide facilities such as full capital account convertibility, a modern financial regulatory framework and resident-based taxation, India has been found wanting on a regulatory regime needed for development of global financial centres.

According to a policy note prepared by the National Institute of Public Finance and Policy, the Finance Bill 2015 must have a provision with residence-based taxation for all activities by non-residents in finance SEZs.

In the second phase, the finance ministry must enact a full finance SEZ Act while in the third phase, it can enforce the full institutional infrastructure required for an IFC.

Unlike SEZs where manufacturing units located within it are given fiscal, regulatory and trade exemptions so as to enhance exports.

Meanwhile a white paper issued by the government proposes three objectives for an Indian FSEZ: create high value financial sector jobs on Indian soil; create an avenue for financial globalisation (like Hong Kong is to China); and be a laboratory of new ideas for financial policy making for the development of the overall Indian financial system.

''India requires sophisticated financial services to fuel growth in the future,'' said the NIPFP report, adding that the country also has an opportunity to produce these financial services as there is no IFC in India day time, people in the country have requisite skill sets and also due to the vast hinterland economy.

It is estimated that roughly half of the global trading in rupee and Nifty takes place in locations such as Singapore, London and Dubai. The finance ministry is trying to put in place an enabling legislation that would bring in a substantial part of the trading in rupee and Nifty derivatives market to Indian firms.

Finance ministry officials have been in intense discussions with officials of the Sebi and other regulatory agencies on the ideal policy framework necessary for this. With the broad contours of this policy initiative in place, the upcoming Sebi board meeting will take it forward, reports quoted sources as saying.

Already, GIFT City in Gujarat is looking to emerge as an ''offshore haven''. The international exchange of National Stock Exchange is expected to be set up within the SEZ area of GIFT City.

But it remains to be seen if the government will hand out incentives such as exemption on Securities Transaction Tax on trades put through in the international bourses located in the 'finance SEZ'.

With the implementation of new Indian financial code and full capital account convertibility seen as inevitable for economic reforms in India, it would make sense to have a policy framework around 'finance SEZs', the sources said.

This could be the first step towards a larger objective and long cherished goal of creating an international financial services centre in India.