Foreign Investors Forced To Trade Onshore As Licensing Stops
The BSE Ltd., Metropolitan Stock Exchange and National Stock Exchange announced that to avoid the trade of India from transferring abroad they will stop licensing the foreign exchanges for data and products which leaves them to choose an option between giving up on an emerging market or pay high taxes and transfer their trade to India.
If they shift their trade to India they have to incur the risk of investing in the rupee-based system and they also have to register will the regulators. There is an alternative to this, shifting their trade to Gujarat, which is the International Finance Center in India that has Dollar-based deals with lower tax rate and improved infrastructure. There is a risk to this as well because of a shortage of liquidity in Gujarat so investors have to be cautious before moving their trade here. This issue can be overcome if some prominent global exchange ties-up with the domestic ones. On the other hand, Government is trying to bring reforms and developing Gujarat’s International Finance Tech (GIFT).
The tradeoff of not investing in Indian market is losing the market which is rapidly growing ever since 2014 through the reforms which are implemented by Narendra Modi.
Margaret Yang, a market analyst in Singapore expressed her views that this action is a shrink back for the internationalization of Indian market.
These steps came when the foreign investors are charged 10% tax in equity if it has long-term gain. Although India is trying to bring reforms by making the process of investing here simple, these are highly unpredictable. So the investors will still prefer trading in Singapore rather than in India as Singapore has zero tax on capital gains.
Above all, it is quite possible that these investors may not consider investing in India due to such regulations.