International Financial Services Centers: Determinants of Success with Special Reference to India

Abstract

The main objective of the research was to identify key determinants of success for International Financial Services Centres with special reference to India. The Chapter wise summary of the research is as follows: Chapter 1: Covered the Introduction to the research. Researchers from all around the world have studied the International Financial Services Centres (IFSCs) and its competitiveness in great detail, but there have been few significant studies undertaken in India, with the exception of a handful by the Ministry of Finance and the Regulators. The economic impact of IFSC growth in India would be profound. The development of a flourishing IFSC in India will be facilitated by understanding key elements for its success. The Chapter included the background and evolution of IFSCs, how IFSCs and IFCs have developed, the definition of IFSC, Global Development, International experience, Development in India, IFSC Opportunity: Case for an Indian IFSC, how IFSC have been established in India. Chapter 2: Covered the Perspective, activities and categories of IFSC. It explained why IFSCs are established. How the same is viewed from the perspective of the following: • From the perspective of the jurisdictions hosting the International Financial Service Centre. • From the perspective of the International Financial Service Centre Units. • From the perspective of the users/consumers of the International Financial Service Centre.

How IFSCs operate covering Separate Laws for Offshore Activities, Common or Separate Regulatory Authority (ies), Offshore Currencies, Dealing with Non-Residents, Flexible Regulation and Concessionary Treatment, Varied Activities. Further it explained the following categories of IFSCs: (a) International Finance Centers (IFCs), which offer the widest range of IFS to customers from all over the world; (b) Regional Finance Centers (RFCs), which support regional economies rather than just national ones; examples of such RFCs include Dubai and Hong Kong; and (c) Offshore Financial Centers (OFCs), which focus primarily on wealth management and global tax management rather than providing the full range of IFS. Chapter 3: Covered the Literature Review. History of International Financial Centres “Capitals of Capital” – The Rise and Fall of International Financial Centres - written by Youssef Cassis (2010): • Unfortunately, no single book until now traces the history of the ‘capitals of capital’ in a clear and comprehensive manner, • The book summarises in a single volume 200 years of history of the world’s most significant international financial centres.

The book covers a chronological chunk, starting in: • the introduction with the early years “The age of Private Bankers - 1780 to 1840. • chapter two, “Concentration of Capital,” begins in 1840 and ends in 1875; • chapter three discusses globalization between 1875 – 1914; • chapter four spans one war, a depression, and then war again between 1914 and 1945; • chapter five, “Growth and Regulation,” takes up the story in 1945 and continues to 1980; • chapter six looks at globalization, innovation and financial crisis between 1980 – 2010.

A brief conclusion offers explanatory hints and peers a short way into the future. The literature review provided insights into how the development of city is linked to development of financial centres, the factors affecting the development of IFCs, the experience of other financial centres. Chapter 4 & 5 : Covered Research Objectives, methodology, significance of the study and Detail analysis & results. The research main objective was to identify key determinants of the success of International Financial Services Centres with special reference to India. The following sub-objectives were adopted to address the main objective of the research: Research Objective 1: To identify the determinants responsible for the success of International Financial Services Centres (IFSCs) globally and examining the various factors which have contributed to their growth. For the above objective, two stage research was carried out: 1A. Detailed analysis of biannually published Global Financial Centre Index by Z/Yen Group, London since March 2007. 1B. Detailed Case Studies of three financial centres covering Dubai, Hong Kong and Labuan, Malaysia. Detail Analysis & Results of the above two were covered in Chapter 5. Research Objective 2: To gain first-hand experience of the global centres and identify specific determinants responsible for their growth, to examine the role of physical and social infrastructure and to identify the factors considered more important by global professionals Methodology For the above objective, two stage research was carried out: 2A. A visit to 8 IFCs were made, relevant discussions held and the physical and social infrastructure for the success of the those financial centres were examined. 2B. To investigate, analyse and develop report on “Financial Centres likely to become more significant” covering GIFT IFSC. Detail Analysis & Results of the above two is covered in Chapter 5. Research Objective 3: To identify and investigate the key determinants of success for the International Financial Services Centre in India: Methodology For the above objective, two stage research was carried out: 3A. Factor Analysis based on the response to the questionnaire by the financial professionals. With an objective to identify the determinants (components) in an Indian context, factor analysis has also been attempted to find whether the analysis supports a few hypotheses/statements amongst the various emerging statements/components from the factor analysis. Based on the studies (GFCI Reports) / literature review, case studies, and FGDs it is hypothesized that at least the following statements/hypothesis may get support/confirmation from the factor analysis: 1. Regulations: Favourable regulations play a crucial role in the growth of IFCs. 2. Business Environment: Favourable business environment is necessary for the growth of markets and IFCs as it provides easy access to various financial services to conduct smooth businesses. 3. City and Infrastructure Development: Social and Transport infrastructure in particular are very important for City Branding as it attracts more financial institutions which are necessary for the growth of IFCs. 4. Financial Sector Development: An overall financial sector development is an indicator of the Ease of Doing Business. Besides other, it comprises the availability of skilled manpower along with the unified regulator is necessary for the growth of IFCs.

3B. Focused Group Discussion (FGD) / Roundtable discussions were held with relevant groups both in India and Outside. Detail Analysis & Results of the above two is covered in Chapter 5. Research Objective 4: To make recommendations and suggestions to policy makers with regard to the steps required to be undertaken for developing a successful and full spectrum International Financial Services Centre in India. Methodology The data gathered from the GFCI reports, the case studies of three international financial centres, the visit to financial centres, the report on financial centres likely to become more significant, the factors identified through factor analysis and the focus group discussions, were used to identify the International Financial Services Centres: Determinants of Success with special reference to India. Details of above is covered in Chapter 6. 4.2 Source of Data Collection: The data collection covered both primary and secondary sources. The primary data included personal visits, interactions, focus discussion, questionnaire. The secondary included detail study of literature and GFCI reports. 4.3 Significance of the Study: The study provides the first of its kind detailed research work in India to identify key determinants for the success of International Financial Services Centres with special reference to India. It provides suggestions to the policymakers for further steps required to make IFSC in India a successful financial centre having its impact the world over. Chapter 5: Covered the Detailed Analysis and Results of the research. The detail study of GFCI reports between 2007 to 2020 provides great insight into the rating and ranking of financial centres and how on different parameters IFCs are rated. A Case Study of the following 3 financial centres was carried out: 1. Dubai International Financial Centre (DIFC), Dubai 2. Hong Kong International Financial Centre (HKIFC), Hong Kong 3. Labuan International Business & Finance Centre (LIBFC), Malaysia

The 3 centres were identified for the following reasons: 1. Countries in which these centres are located don’t have full capital account convertibility (same is the case with India) 2. These centres have been developed in carved out zones, distinct from domestic economy (same is the case with India)

Visit to following 8 IFCs were made to hold relevant discussions with professionals, regulators and institutions operating in the those financial centres and to examine the physical and social infrastructure for the success of the those financial centres: • Singapore • London • New York • Dubai • Abu Dhabi • Hong Kong • Dublin, Ireland • Astana, Kazakhstan A customized report was developed with GFCI providers which covered specific response to GIFT IFSC. The report was published in March 2019 titled “Financial Centres Likely to become more Significant”. Further, Factor analysis was carried out for the response to the customized questionnaire. The results of the Factor analysis provided great insight into factors considered more important from an Indian perspective. The focus group discussion gave the perspective of various experts and practitioners on the success of IFSCs in India. The Detail Analysis and Results for the above methodologies are covered in Chapter 5. It may be seen that the Conducive Business Environment, Ease of Doing Business and Brand and appeal of the city emerged as major determinants of the success of the IFCs. Also from the Indian perspective Effective dispute resolution mechanisms, unified regulator, competitive tax regime, international universities, social infrastructure and cultural diversity and safety emerged as more significant factors. Chapter 6: Covered the implications of the study and suggestions for the Policymakers. It highlighted how the research would impact the key stakeholders. The suggestions for policymakers provided insights from the research and how they can effectively utilise the study for policy intervention. It also covered the limitation of the study and future research directions. It highlighted how the research had data limitations from the Indian perspective and how the research can be used in future by other research scholars to develop greater insight into the IFSCs. Chapter 7: Covered the Summary and Conclusion of the study. The statistics analysed in the research indicate that GIFT IFSC, a new financial centre, can increase its competitiveness more quickly by focusing on the characteristics identified and focusing on the five guidelines suggested for policymakers.