From Regulation To Revolution, Has IFSCA Made GIFT City India's Financial Crown Jewel?

In a time when global trade barriers are diminishing and Indian enterprises are progressively exploring international markets, the capacity to adeptly handle foreign currencies can significantly influence competitive advantages. Picture an Indian exporter closing a multimillion-dollar agreement without the burden of ongoing currency exchanges or regulatory obstacles, doesn't that seem revolutionary? On August 13, 2025, foreign currency got an Indian address as the International Financial Services Centres Authority (IFSCA) brought this vision closer to reality with a crucial circular that elucidates the process for opening and managing Foreign Currency Accounts (FCAs) by individuals residing in India¹. This advancement not only simplifies operations within India's rapidly growing International Financial Services Centres (IFSCs) but also indicates a developing financial ecosystem ready to compete with global centres such as Singapore and Dubai. As we delve further, this article examines the details of this circular, its foundations in existing regulations, and why it has the potential to be a transformative factor for India's economic goals.

Background

India's path towards liberalising its foreign exchange framework has been systematic, striking a balance between economic advancement and careful regulation. At the heart of this structure lies the Foreign Exchange Management Act (FEMA) of 1999².

Under FEMA, the Reserve Bank of India (RBI) has established various regulations, such as the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015³. These regulations regulate how Indian residents may open, possess, and manage Foreign Currency Accounts (FCAs) abroad, ensuring that these accounts fulfil legitimate purposes without compromising the stability of the domestic currency. In the past, Indian residents encountered rigorous limitations on holding foreign currency, mainly to curb capital flight and maintain foreign exchange reserves. Accounts were only allowed under particular circumstances, frequently necessitating prior approvals, which could prove burdensome for businesses navigating a dynamic global marketplace.

The establishment of IFSCs signified a notable transformation. Established through the Special Economic Zones Act of 2005⁴ and strengthened by the IFSCA Act of 2019⁵, IFSCs such as the Gujarat International Finance Tec-City (GIFT City) were built as onshore financial hubs that provide offshore-like advantages. The IFSCA, acting as the consolidated regulator, supervises banking, capital markets, insurance, and other financial services within these centres. By categorising IFSCs as "foreign territories" for foreign exchange purposes, India sought to draw in international participants while granting domestic entities access to global financial instruments.

Before the circular issued in August 2025, there was uncertainty concerning whether International Banking Units (IBUs) specialised banking institutions within IFSCs were classified as "banks outside India" according to the 2015 regulations. This ambiguity frequently discouraged residents from utilising IFSCs for their foreign exchange requirements, pushing them to resort to conventional offshore alternatives with greater compliance demands.

Overview of the Circular

Issued on August 13, 2025, under Sections 12 and 13 of the IFSCA Act, 2019, the circular titled "Opening of an account of a person resident in India" offers essential clarity. Effective immediately, it clearly indicates that the term "foreign currency account with a bank outside India" in the 2015 FEMA regulations includes accounts established with IBUs in designated foreign currencies. Consequently, IBUs are now permitted to open FCAs for Indian residents without obtaining prior approval from the IFSCA or RBI, as long as they comply with the outlined conditions. The circular refers to sub-paragraphs (B) to (F) of Paragraph 5 of the 2015 regulations, which outline the acceptable circumstances for such accounts. By incorporating IBUs into this framework, the IFSCA addresses a regulatory gap, facilitating the smooth integration of domestic residents into the IFSC ecosystem.

What the Circular Entails

At its essence, the circular clarifies the operational facets of FCAs within IFSCs. Below is a summary of the key components:

Permissible Accounts and Currencies: Indian residents are permitted to open FCAs in designated foreign currencies (generally major currencies such as USD, EUR, GBP, etc., depending on IBU offerings) with IBUs. This permission is not universal but is associated with specific purposes outlined in the FEMA regulations.

Alignment with FEMA Scenarios: The accounts are required to adhere to sub-paragraphs (B) to (F) of Paragraph 5:

(B): For residents traveling to foreign countries, allowing temporary holdings during their stays abroad, with balances to be repatriated upon their return.

(C): For participants in international exhibitions or trade fairs, to receive sale proceeds, with repatriation mandated within one month following the event.

(D): For exporters, to obtain export values and receive advances, thus facilitating smoother trade finance operations.

(E): For certain employees, foreign nationals on assignment to Indian entities, Indian citizens on deputation abroad to foreign companies, or foreign nationals employed by Indian firms to remit or receive salaries.

(F): Under the Liberalised Remittance Scheme (LRS), allowing residents to remit up to USD 250,000 annually for permissible capital and current account transactions.

No Prior Approval Needed: A notable aspect is the removal of pre-approval requirements for IBUs, minimising bureaucratic delays. However, compliance with anti-money laundering (AML) regulations, know-your-customer (KYC) standards, and reporting duties remains obligatory.

Scope and Limitations: The circular is applicable exclusively to individuals residing in India as defined under FEMA (typically those residing in India for over 182 days in the previous financial year). It does not cover unrestricted holdings or speculative activities, thereby upholding FEMA's conservative principles. This organised approach guarantees that while access is facilitated, measures against misuse are firmly maintained.

Significance in boosting India's Global Financial Integration

The release of the circular is well-timed, aligning perfectly with India's goal of becoming a $5 trillion economy by 2027⁶ and achieving developed nation status by 2047. By clarifying FCA regulations, it boosts the appeal of GIFT City, which has already experienced remarkable growth in banking assets and fund management.

From an economic standpoint, it lowers transaction expenses tied to currency conversions, hedging, and intermediaries. For example, exporters are now able to retain their earnings in foreign currency, reducing risks associated with rupee volatility and enhancing cash flow management⁷. This is especially vital in the face of global uncertainties such as geopolitical conflicts and variable commodity prices. Additionally, it empowers start-ups and small to medium enterprises (SMEs) by facilitating easier access to international financing and payments, thus promoting innovation in sectors like fintech and e-commerce. This initiative also fortifies India's role within global value chains, encouraging increased cross-border partnerships and joint ventures.

Furthermore, it promotes financial inclusion for international transactions. With India being the largest recipient of remittances globally⁸ (exceeding $100 billion annually), the stipulations under sub-paragraph (E) streamline salary remittances for expatriates and employees on assignment, benefiting MNCs operating in India. This could result in a rise in inward remittances, enhancing foreign exchange reserves and bolstering macroeconomic stability.

From a regulatory standpoint, this initiative highlights IFSCA's proactive approach to align domestic and international regulations. It establishes IFSCs as gateways for cross-border finance, potentially boosting FDI inflows and drawing global financial institutions to establish a presence in India. By diminishing dependence on offshore centres, it champions financial sovereignty and may inspire analogous reforms in other emerging markets. Overall, the circular accelerates India's incorporation into the digital global economy, where effective forex management is crucial for competitiveness in domains such as sustainable finance and blockchain-driven transactions.

Strategic Opportunities for Businesses

For companies involved in international trade, the circular unveils fresh opportunities. Exporters, especially in industries such as IT, pharmaceuticals, and manufacturing, can utilise FCAs for quicker collection of receivables, thereby shortening working capital cycles. Importers gain indirectly by allowing their partners to securely hold advances. This enhanced efficiency may lead to improved pricing negotiations and broadened market presence, particularly in high-growth areas like ASEAN and Africa.

Multinational corporations with Indian subsidiaries can enhance treasury operations by channelling salaries and expenses through accounts based in IFSC, thus reducing tax inefficiencies and compliance complexities. Thanks to the LRS-linked provision, affluent individuals and family offices can diversify foreign investments more smoothly, albeit within certain limits, aiding in strategic asset allocation amidst fluctuating markets.

Banking institutions in IFSCs are poised to benefit significantly, with IBUs likely experiencing a rise in account openings and transaction activities⁹. This could stimulate innovation in products such as forex derivatives, trade finance, and sustainable financing, in line with global ESG trends. For fintech firms, the circular creates opportunities to develop integrated platforms that merge domestic and international payment systems, potentially transforming conventional banking practices.

Moreover, sectors like renewable energy and infrastructure can take advantage of this for funding international initiatives, including solar exports or foreign acquisitions. Start-ups targeting global growth can employ FCAs to manage seed investments from overseas investors without incurring conversion losses, thereby accelerating their growth paths. In the realm of mergers and acquisitions (M&A), it streamlines escrow processes and cross-border payments, rendering Indian firms more agile during negotiations. Companies should incorporate this into their risk management strategies, utilising data analytics to refine forex approaches and enhance returns.

Conclusion

The circular issued by the IFSCA on August 13, 2025, represents more than just a regulatory tweak, it's a significant step towards India's incorporation into the global financial landscape. By enabling residents to hold FCAs in IFSCs, it removes outdated obstacles, promoting efficiency, innovation, and growth. As enterprises explore this new landscape, the opportunities for increased competitiveness are substantial. However, achieving success relies on careful utilisation and continuous regulatory oversight. In the broader context, this initiative reinforces India's dedication to a dynamic, resilient economy, poised to excel on the international stage.

Footnotes

1 International Financial Services Centres Authority. (n.d.).

2 Parliament of India. (1999). THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999. In THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999.

3 Notifications - Reserve Bank of India. (n.d.).

4 SEZ Act | Special Economic Zones in India. (n.d.).

5 Parliament. (2019). THE INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY ACT, 2019. In THE INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY ACT, 2019.

6 Ani. (2025, May 29). India on track to become USD 5 trillion economy by 2027-28: Chief Economic Advisor. The Economic Times.

7 TRADING ECONOMICS. (n.d.). Indian Rupee - quote - Chart - Historical data - news.

8 Radhakrishnan, V. (2025, February 13). India got 14.3% of global remittances in 2024, its highest ever. The Hindu.

9 GIFT City Financial Services Conference. (2024). GIFT City Financial Services Conference on Unlocking Opportunities in Financial Services for Banks in GIFT IFSC 2024.

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