Wealthy Indians' plan to invest abroad via GIFT city hits roadblock

By Preeti Singh and Saikat Das

Regulators have stopped allowing local family offices to set up investment funds in its new finance hub, as they are concerned these arrangements may be used to evade taxes and capital controls, according to people familiar with the matter.
 

The regulator for Gujarat International Finance ­Tec-­City is halting approvals for family investment funds after feedback from the central bank, the people said, declining to be identified discussing private matters. The Reserve Bank of India is worried that loosening capital controls for such instruments could result in loopholes that may be exploited for money laundering, they said. 

The move could deal a blow to GIFT City’s ambitions to be a one-stop shop used by wealthy individuals for overseas investments. The finance hub, in Prime Minister Narendra Modi’s home state of Gujarat, was set up to be a free-market pilot, unhindered by local rules on taxes and capital flows.

In January, the special economic zone gave its first in-principle approval to billionaire Azim Premji’s family office to invest its capital overseas, raising the hopes of dozens of applications that were in the works, Bloomberg News had reported. With no final approvals since then, family funds are now looking to set up investment offices in countries such as Singapore and Dubai, the people said.

Representatives for International Financial Services Centres Authority, which governs GIFT City, the RBI and Premji’s office didn’t respond to e-mailed requests seeking comments.

India has strict controls on moving capital abroad. Its foreign exchange regulations cap overseas investments for each resident at $250,000. The limit includes purchase of property, investment in shares and securities, and setting up of joint ventures or subsidiaries. 

Resident Indians can make overseas investments through instruments offered by global banks and wealth advisors, including HSBC Holdings Plc, 360 One WAM and Nuvama Wealth Management, in GIFT City.

The latest move is aimed at plugging the loophole, which would have allowed resident Indians to transfer more than the permitted capital abroad, the people said. 

It comes amid a wealth boom in the world’s fastest-growing major economy. The number of individuals with more than $30 million of assets is expected to grow by 50% between 2023 and 2028, according to a Knight Frank wealth report. As they look to diversify investments, they’ve become prime targets for banks scouting for new money.