India requires sophisticated financial services to fuel growth in the future,  the concept note of National Institute of Public Finance and Policy (NIPFP) said.
The financial system determines the allocative efficiency of the use of capital; a sophisticated financial system improves the GDP growth obtained out of a given flow of investment, it said.
Establishment of finance SEZs would help in bringing the trade on rupee and NIFT, which has shifted to countries like Singapore and Dubai, London.
The note said a substantial process of financial sector reforms is underway, with the implementation of the draft Indian Financial Code (IFC) that has been drafted by Justice Srikrishna's 'Financial Sector Legislative Reforms Commission' (FSLRC).
This involves many new ideas in the law and the institutional infrastructure, said NIPFP.
"Implementing those ideas now in Finance SEZs is a way for those ideas to be test-driven on a relatively modest scale. This can be a pilot project before these ideas are applied on an all-India scale," it said.It has also suggested a securities exchange within a Finance SEZ.
"If such an exchange can be built in a finance SEZ in India, it would be able to trade a comprehensive array of Indian and global products," the note said.
The note further said that it is difficult to have banks in finance SEZs as these would not have access to lender of the last resort facilities from the RBI.
"For some time, we may envision a world where global banks will open branches in Indian finance SEZs but there will not be de novo banks who are licensed to operate there," it

As per the note, such SEZs should be exempted from levies like Security Transaction Tax (STT) and service tax. Presently, the bulk of global financial services production takes place in a few international financial centres, like New York, London, Singapore, Hong Kong and Tokyo.

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