Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
From UPSC perspective, the following things are important:
Prelims level: IFSC Authority Bill
Mains level: Terms of reference of the IFSC Authority
The Union Cabinet has approved establishment of a unified authority for regulating all financial services in International Financial Services Centres (IFSCs) in India through International Financial Services Centres Authority Bill, 2019.
The first IFSC in India has been set up at GIFT City, Gandhinagar, Gujarat.
What is an IFSC?
An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centers by Indian corporate entities.
They offer business and regulatory environment that is comparable to other leading international financial centers in the world like London and Singapore.
Why regulate IFSCs?
Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators, i.e. RBI, SEBI and IRDAI.
The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination.
It requires regular clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs.
The development of financial services and products in IFSCs would require focussed and dedicated regulatory interventions.
It provides world class regulatory environment to financial market participants.
Further, this would also be essential from an ease of doing business perspective.
The establishment of a unified financial regulator for IFSCs will result in providing world-class regulatory environment to market participants from an ease of doing business perspective.
This will provide a stimulus for further development of IFSCs in India and enable bringing back of financial services and transactions that are currently carried out in offshore financial centres to India.
This would also generate significant employment in the IFSCs in particular as well as financial sector in India as a whole.
Features of IFSC Authority Bill, 2019
Management of the Authority
The Authority shall consist of a Chairperson, one Member each to be nominated by the RBI, the Securities Exchange Board of India SEBI, the IRDAI and the PFRDA.
Two members are to be dominated by the Central Government and two other whole-time or full-time or part-time members.
The Authority shall regulate all such financial services, financial products and FIs in an IFSC which has already been permitted by the Financial Sector Regulators for IFSCs.
The Authority shall also regulate such other financial products, financial services or FIs as may be notified by the Central Government from time to time.
It may also recommend to the Central Government such other financial products, financial services and financial institutions which may be permitted in the IFSCs.
All powers exercisable by the respective financial sector regulatory (viz. RBI, SEBI, IRDAI, and PFRDA etc.) under the respective Acts shall be solely exercised by the Authority in the IFSCs.
This is so far as the regulation of financial products, financial services and FIs that are permitted in the IFSC are concerned.
Grants by the Central Govt
The Central Govt. may, after due appropriation made by Parliament by law in this behalf, make to the Authority grants of such sums of money as the Central Government may think fit for being utilized for the purposes of the Authority.
Transactions in foreign currency
The transactions of financial services in the IFSCs shall be done in the foreign currency as specified by the Authority in consultation with the Central Govt.
Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth
Mains Paper 3: Indian Economy| Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
From UPSC perspective, the following things are important:
Prelims level: SEZ Policy (2005)
Mains level: Reconsidering the SEZ Policy in India
The SEZ Policy Review Committee has its final round of consultations with the members under the chairmanship of the Commerce Secretary.
The Committee was of the opinion that SEZ should now transform into “Employment and Economic Enclaves” (3Es).
Why such Policy Review?
The objective of the Committee was to evaluate the SEZ policy framed in 2000 and suggest measures to make the policy WTO compatible.
It is aimed to give suggestions which will encourage manufacturing and services sector and lead to maximizing utilization of vacant land in SEZs.
It further aims to create seamlessness between SEZ policy and other schemes like Costal Economic Zone, Delhi-Mumbai Industrial Corridor, National Industrial Manufacturing Zone, Food Parks and Textile Parks.
Broadening the scope of SEZs
The changes in the macro-economic environment in India required a re-look at the SEZ Policy framework so that focus is on enabling generation of 100 million jobs in the manufacturing sector.
It will enable manufacturing competitiveness within the framework of WTO rules, bringing in services sectors like health care, financial and legal services, repair and design services under SEZs.
Special Economic Zones (SEZ)
SEZs are set up under Special Economic Zones Act, 2005 as duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs in India.
SEZ units are deemed to be outside the customs territory of India.
Goods and services coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and services rendered from the SEZ to the DTA are treated as imports into India.
The facilities at SEZ include:
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.
Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
External commercial borrowing by SEZ units upto 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.
Setting up an SEZ
The developer submits the proposal for establishment of SEZ to the concerned State Government.
The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval.
The applicant also has the option to submit the proposal directly to the Board of Approval.