Several start-ups with Indian promoters are considering shifting their global banking operations back to India. It is an opportune moment for Indian regulators to take action and position India as an alternative for the affected entities to consider.
Ranked 63rd in 2022 as compared to 142nd in 2014, India has come a long way when it comes to the ease of starting a business. Start-ups face multiple operational and other challenges. Regulators and governments are working to ensure a smooth ride for all start-ups. One such initiative is the IFSC GIFT City, where the Indian government has been consistently making efforts to make it the preferred destination for most sectors, including financial services, education, fintech, aircraft, ship leasing and ESG, among others.
The moot issue for any start-up is the ease of compliance, clarity on tax, flexibility in transferring funds in global markets, multiple currency acceptance via a single bank account to ease conducting of trading operations from various countries, ambiguity on undertaking certain cash outflows from India, reporting compliances, etc. The IFSC, in its current state and form, seems to be the most feasible option for such Indian start-ups to move funds and continue global operations seamlessly. The Indian government has granted a plethora of incentives to businesses, especially start-ups in the fintech and venture capital space, to carry out their business across the world from the IFSC in India. The key advantages compared to other IFSCs in the USA and other countries are the ease of registration, less stringent regulatory requirements, a bank account with free movement of foreign currency in USD account, etc. Certain banks currently operating in the IFSC have started onboarding start-ups and are assisting them in redomiciling their global businesses to India. Considering the substance and importance, IFSCA has also formed a committee comprising experts from various fields that will encourage Indian start-ups to redomicile to India and set up their base in the IFSC GIFT City. The committee's objective is to investigate the regulatory, tax, legal, and other barriers impeding the growth of domestic start-ups. Simultaneously, the committee will also highlight opportunities for the development of the IFSC into a global fintech hub.
Given the current scenario, multiple areas would require immediate attention. Firstly, granting tax exemptions on redomiciling assets in IFSC. Secondly, minimal KYC requirements to open foreign currency accounts to facilitate international transactions for entities from regulated countries. Lastly, providing more power to the International Financial Services Centre Banking Unit (IBU) to onboard non-residents and foreign entities, allowing them to open dollar accounts and deposits. The expectation is that the Indian Government will take cognisance of this potential opportunity to bring back the corporates who moved to the USA by announcing tax and regulatory measures to make their pathway clear and position the IFSC as the next door to knock after the closure of SVB by the US regulators.
Source: The Economic Times