GIFT City on the way to becoming an international financial hub

Source: The Week

Gujarat is officially a dry state. But soon, investors flocking to the Gujarat International Finance Tec-City, or GIFT City, which is located between the state’s largest city Ahmedabad and its capital Gandhinagar, will be able to raise a toast, as the government has given hotels, restaurants and clubs there permits for wine and dine facilities.

GIFT City has always been an exception. The ambitious project envisioned by Prime Minister Narendra Modi wants to challenge global financial hubs like Dubai and Singapore. Conceptualised in 2007, when Modi was Gujarat chief minister, its foundation stone was laid in 2012 and business commenced in 2015.

It is still a work in progress, and a far cry from the global financial hub it aspires to be, but it is steadily getting there. “Once major players set up shop in GIFT City―some of the foreign banks are already there and some have set up back office operations―it is only a matter of time before we have all types of players from the ecosystem,” said Sriram Krishnan, chief business development officer, NSE. “In the next few years, GIFT City will be how Bandra-Kurla Complex in Mumbai looks today.”

GIFT City has already established itself as an international financial services centre (IFSC). Last year, the popular SGX Nifty, the Singapore Stock Exchange-traded futures on the NSE’s benchmark Nifty50 index, was rebranded GIFT Nifty and all the derivative contracts earlier traded in Singapore were moved to the NSE International Exchange (NSE IX) in GIFT City. This shift of derivatives trade worth $7.5 billion was a big step in attracting more investors. Some 59.13 lakh contracts were traded on international stock exchanges in GIFT City with a traded value of $194.88 billion till September last year.

Modi recently said he wanted to make GIFT City a global nerve centre of new age global financial and technology services. Many tech giants have shown interest. Google and Oracle have already taken up space to set up their fintech centres. Many global business leaders attended the Global Fintech Leadership Forum at GIFT City, organised as part of the Vibrant Gujarat Summit, on January 10.

Bhavin Shah, partner and leader (deals) at PwC India, said the establishment of International Financial Services Centre Authority (IFSCA) as a unified regulator for GIFT City had ushered in a new era of progress. “IFSCA has been proactive in introducing regular updates and amendments, offering robust regulatory support to enhance the business environment. The goal is to streamline business procedures and lay down a ‘red carpet’ to investors and businesses who opt for GIFT City, instead of the proverbial ‘red tape’,” he said. Some 400 entities have already opted to establish operations in GIFT City.

Twenty-three IFSC Banking Units (IBUs) already have presence in GIFT City. IBUs are branches of banks that offer international banking services. Assets of these IBUs―trade finance, investments, commercial loans and interbank placements―touched $46.48 billion in September 2023.

Asset managers and alternative investment funds, too, have been steadily driving in, as having a base in GIFT City enables both inbound and outbound investments. These funds can offer products to global investors, and, at the same time, offer local investors options to invest in global markets through the liberalised remittance scheme (LRS) route.

A lot of the global capital is managed out of Singapore and Dubai. GIFT City gives the option of managing this money through Indian shores. DSP, for instance, manages around $19 billion in funds, of which around $2.5 billion is managed through its offshore office in Mauritius, where it has raised money from global investors. It is now moving the office to GIFT City. “There will be focus on products for inbound investors, foreign institutional investors, hedge funds, family offices and pension funds, and outbound investors can invest in global opportunities,” said Jay Kothari, senior vice president and global head of international business at DSP Asset Managers.

It is not just the banks and financial institutions that are setting up shop in GIFT City. Aircraft lessors, ship leasing companies and fintechs are moving in in droves. Air India’s recent acquisition of Airbus A350 aircraft in a finance lease was facilitated by AI Fleet Services (AIFS), a finance company registered in GIFT City. AIFS will be the primary Air India entity for wide-body aircraft financing. IndiGo, India’s largest airline, also has plans to set up a unit in GIFT City to finance lease aircraft.

Along with regulatory support, cost effectiveness also sets GIFT City apart. “Compared to other international financial centres, the operational costs in GIFT City are notably lower, making it an attractive destination for businesses seeking a thriving and conducive economic environment,” said Shah of PwC.

GIFT City offers a 10-year tax holiday for units. There is no goods and services tax on services received by a unit. Investors are exempted from securities transactions tax (STT) and stamp duty for transactions done on international exchanges in the IFSC. Funds operated from there are exempt from distribution tax. Interest payable by a unit to non-residents is not taxable in India and the minimum alternate tax (MAT) rate for income earned in convertible foreign currency is 9 per cent against the actual 18.5 per cent.

“A recent notification also grants exemption from the requirement to obtain permanent account number (PAN) for non-residents undertaking specified transactions with an IBU. This reflects a deliberate effort to attract foreign investors and create a business environment at GIFT City that is notably friendly and conducive to investors,” said Shah of PwC.

The government actively removes any speed bump on the way of GIFT City’s smooth progress. The dual approval needed to set up a unit there―one from the development commissioner of special economic zone and the other from the IFSC authority―was a headache. To overcome this, Finance Minister Nirmala Sitharaman announced a proposal in the 2023-2024 Union Budget to give IFSC Authority powers under the SEZ Act. A single window IT portal was also created to get approvals.

As new businesses move to GIFT city, authorities are also focusing on building the social infrastructure that will be key to attracting people to live there. Gujarat Chief Minister Bhupendra Patel recently said that there were plans to develop the riverfront along the Sabarmati. Metro rail connectivity from Ahmedabad to GIFT City is expected to be operational by July and approval has already been granted for constructing more residential units. Patel said town planning schemes would be devised as part of the phase two development plan and a large township would be constructed in the adjoining areas of GIFT City.

Australia’s Deakin University opened its first overseas campus in GIFT City on January 9. For now it offers postgraduate courses in cyber security and business analytics. “The location of the site―one of the biggest financial and tech hubs in India―makes it very attractive. It suited what we wanted to have, a focus on employment related to postgraduate qualifications, working in cyber security, business analytics, where business are crying out for well qualified graduates, and this makes it a good option,” said Prof Iain Martin, vice chancellor of Deakin University. The University of Wollongong, Australia, is also planning to open a campus in GIFT City.

Aided by the upswing in demand, the real estate in GIFT City is witnessing a surge. “The government has allocated some 22 million square feet space so far, and $240 million committed investment,” said Swapnil Anil, executive director & head of advisory services, Colliers India. “The residential prices in GIFT City have increased 25-30 per cent in the past a few quarters. These advancements have resulted in a notable rise in the residential and commercial real estate markets along the Ahmedabad-Gandhinagar corridor.”