Concept paper on finance SEZs: A welcome initiative

An increasing amount of business in Indian rupee denominated financial products and other financial products dependent on the performance of the Indian economy is either being conducted offshore or is being shifted to offshore locations such as Singapore and Dubai. As business in these products not only creates jobs in the financial services sector but also in other sectors that benefit the local economy, successive Indian governments have recognized the importance of establishing an international finance centre in India on par with locations such as London and Singapore. The key reasons for conducting such business outside India – world class infrastructure, full capital account convertibility with ease of entry and exit for foreign investment, and efficient resolution of disputes – too have been recognized and given due weight.

A report in 2007 from a “high powered expert committee” constituted by the Ministry of Finance, headed by Percy Mistry, provided recommendations to make Mumbai an international finance centre. The report recommended the urgent reform of the Indian legal system, the consolidation of various financial laws, a unified financial regulator, and substantial opening up of the Indian financial market.

While the report’s recommendations are long-term rather immediate goals, establishing a special economic zone (SEZ) with liberalized financial laws and a comparatively more efficient financial system would be an acceptable medium-term solution. A concept paper on the establishment of finance SEZs, submitted by the National Institute of Public Finance and Policy to the Ministry of Finance, appears to have adopted this view. The ministry is seeking public comment on the concept paper, which it made available on 17 February 2015.

Sawant Singh is a partner and Aditya Bhargava is a principal associate at the Mumbai office of Phoenix Legal.