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International bullion exchange to check business to Dubai, Singapore: Officials

Hours after the announcement, the BSE’s India International Exchange’s MD and CEO, V Balasubramaniam, said it was keen to set up the International Bullion Exchange at GIFT IFSC.

Written by Avinash Nair | Ahmedabad |
February 2, 2020 12:02:05 pm
Businessmen at the Gujarat Chamber of Commerce and Industry in Ahmedabad watch the Union Budget on Saturday. Javed Raja

Setting up of an international bullion exchange in GIFT IFSC will help retain a lot of business, which is currently migrating to centres like Dubai and Singapore, said Tapan Ray, Managing Director and Group CEO of GIFT City, after Union Finance Minister Nirmala Sitharaman announced setting up of such an exchange for “creating additional jobs” and “better price discovery of gold”.

Hours after the announcement, the BSE’s India International Exchange’s MD and CEO, V Balasubramaniam, said it was keen to set up the International Bullion Exchange at GIFT IFSC.

According to Ray, “India does not have a spot exchange for bullion. Once we set up one, a lot of trading that currently happens in Dubai will shift to India. The volume of bullion trade currently happening abroad will be onshored… We are the world’s second largest buyer of bullion, we are unable to dictate the price. This decision to set up a bullion exchange is a big step.”

“Currently, the market for bullion trading is fragmented. Buyers are buying from different sources. All this will be channelised through GIFT,” Ray told The Indian Express.

Balasubramaniam, in his statement, said that the decision to reduce the withholding tax from 5 per cent to 4 per cent for IFSC Exchange listed bonds “will be an immense boost to all issuers and will help them in attracting more international investors. Índia INX has already listed MTN programs worth USD 47 billion dollars with drawdown of USD 18.5 billion dollars till date. This announcement should greatly incentivise issuers to choose Índia INX as the preferred platform for listing their international bonds and masala bonds”, he added.

These announcements come at a time when the Gujarat government is in the midst of acquiring the 50 per cent stake held by crisis-hit IL&FS in the GIFT City project. State government sources told The Indian Express that the valuation of the stake held by IL&FS has been completed by a private entity appointed for the purpose and very soon the state government will initiate the process to acquire the stake.

This will be the third consecutive year that the Union budget is pushing the GIFT city project. In 2018-19 budget, a unified authority for the IFSC and capital gains tax exemption on transfer of derivatives and certain securities by non-residents were announced. The 2019-20 Union budget extended the tax holiday for a unit that opened in the IFSC up to 15 years, from the existing 10 years.

According to GIFT City officials, the 2020-21 budget announcement of an international bullion exchange by the finance minister is largely based on the recommendations of a 2018 report by Niti Aayog. “This report titled ‘Transforming India’s Gold Market’ by a committee headed by Ratan Watal, Principal Adviser of Niti Aayog, had suggested that IFSC could be a good platform to host an international bullion exchange in India. Even IIMA Gold Policy Centre came up with a similar proposal,” said Dipesh Shah, head, GIFT-IFSC.

Sitharaman said in her speech, “IFSC, GIFT city has the potential to become a centre of international finance as well as a centre for high-end data processing: GIFT IFSC has an approved Free Trade zone for housing vaults. It already has 19 insurance entities, 40 banking entities. It has also provided for setting up of precious metals testing laboratories and refining facilities. With the approval of the regulator, GIFT City would set up an International Bullion exchange(s) in GIFT-IFSC as an additional option for trade by global market participants. This will enable India to enhance its position worldwide, create jobs in India and will lead to better price discovery of gold.”

Ray said warehousing of bullion, including gold, was possible only after regulations were put in place. “With this announcement, and the constitution of the unified authority, regulations can now be framed for a bullion spot exchange. Currently, neither RBI or any other regulator has the regulations for spot exchange of bullion trade,” he said adding that the setting up a spot bullion exchange will help in recirculation of gold held by families and institutions in large quantities and thereby reduce imports.

The Union minister in her budget speech also announced that “in order to incentives listing of bonds at IFSC exchange, the withholding rate on interest payment on the bonds listed on the exchanges is being reduced to 4 percent from the existing five per cent”. Explaining this announcement, Shah said, “By giving this incentive, Indian corporates will prefer to list their bonds first at GIFT IFSC instead of going to places like Singapore where incentives are offered. Though the investors are non-residents, our corporates or business trusts will be able to bring the business to India from places like Singapore and London.” GIFT IFSC currently hosts two international exchanges operated by BSE and NSE where a total of 120-odd persons work.

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