India widens use of foreign currency accounts in GIFT City

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MUMBAI (Reuters) – Indians have been allowed wider usage of foreign currency accounts at the Gujarat International Finance Tec-City, or GIFT City, boosting business prospects for a finance hub pushed by Prime Minister Narendra Modi.

GIFT City, launched in the western state of Gujarat by Modi in 2011, has been planned as an alternative to regional financial centres like Dubai. It offers easier regulations compared with the rest of India but has seen a slow pick up in interest from foreign investors.

The latest changes, announced by the Reserve Bank of India in a circular late on Wednesday, allow Indian investors to use GIFT City as a route for more overseas spending and investments.

Indians are allowed to remit up to $250,000 overseas each year for education and medical expenditure as well as certain kinds of investments.

So far, foreign currency accounts in the finance hub could only be used for investing in overseas-listed securities and for paying tuition for foreign universities at GIFT City.

The relaxation of norms will help banking and financial services in the finance hub, such as payments and insurance.

The biggest beneficiary will be banks and the move will “open up the window” for life insurance companies, Jaiman Patel, partner at EY India said.

It will give India visibility over how money remitted overseas is being deployed, as authorities can seek data more easily, Suresh Swamy, partner, PwC in Mumbai said.

“Financial services activity which was getting routed through other jurisdictions such as Singapore or Dubai can now be done through International Financial Services Centre,” he said.

The overarching rules for remittances out of India will still hold, former central bank deputy governor R. Gandhi said.

Over the last year, Indian authorities have taken a number of decisions to boost activity at GIFT City, including allowing the listing of Indian companies and permitting the wealthy to open family investment funds.