GIFT City: How PM Modi’s pet project is fast becoming India’s capital gateway

In the making for over a decade, India’s only international financial centre, GIFT City, now seems to be taking shape with focussed policies and regulatory clarity. There’s growing interest from investors and more confidence on the ground but a few more policy tweaks may be needed

“We enjoy working here and it’s largely no different from working in Delhi or Mumbai. But we wish the social life were a little better. There’s not much to do after work,” say Niharika and Seema (names changed on request) who are walking down for lunch at their office cafeteria when this writer bumps into them. The 20-somethings have been working with a foreign bank at GIFT City in Gujarat, for the past one and a half years. “There are a lot of young people like us working here who live in Ahmedabad or Gandhinagar,” they say, and before rushing off for lunch, point towards the hectic construction activity taking place all around.     

If there’s one phrase that can describe GIFT City—spread across 1,000 acres of land and just a 20-minute drive from Ahmedabad’s Sardar Vallabhbhai Patel International Airport—right now, it is furious activity. Work is on at a frenzied pace—residential apartments, a school and even a hospital are being built around offices in steel and glass towers that are humming with people, amid vast expanses of vacant land. Announced in June 2007, Gujarat International Finance Tec-City or GIFT City, one of India’s long-standing ambitions to house an international financial services centre (IFSC) on the lines of the ones in Singapore and Dubai, is ready for take-off.

Considered a pet project of Prime Minister Narendra Modi, it has got a boost from the central government in recent years. Several companies in the financial services space have set up shop in GIFT City, which currently has an estimated 400 offices, where 26,000 people work.     

A key reason for this progress has been the International Financial Services Centre Authority (IFSCA), set up in April 2020 under the International Financial Services Centre Authority Act, 2019. Over the past few years, it has kept a sharp focus on putting in place comprehensive regulations to get the place going and continues to be in discussions with ministries to make the jurisdiction more business- and investor friendly.     

“The establishment of the GIFT IFSCA, integrating Indian financial markets with global financial markets, is part of our larger reforms,” Prime Minister Modi had said at the investor conference Infinity Forum in December, noting that the vision for GIFT City has been crafted as a dynamic ecosystem that will redefine the landscape of international finance. “It will set new benchmarks for innovation, efficiency, and global collaboration. The establishment of the IFSCA as a unified regulator in 2020 is a crucial landmark in this journey,” he had underlined.     

IFSCA Chairperson K. Rajaraman notes that there is a set of foreign investors who are still not directly investing in India. “We would want them to come into a jurisdiction (GIFT City) where they feel at ease in terms of ease of doing business, the quality of the regulations, the clarity of the regulations, tax certainty and so on,” he tells Business Today, adding that this has started happening now.   

The buzz around GIFT City was evident at the recent Vibrant Gujarat Global Summit 2024. The PM, in his inaugural address, announced that the UAE’s sovereign wealth fund will soon launch operations there. As part of the summit, he also took part in the Global Fintech Leadership Forum held at GIFT City on January 10 that was attended by the leadership of 26 prominent companies worldwide, including the likes of Reliance Industries Chairman & MD Mukesh Ambani, Micron Technology President and CEO Sanjay Mehrotra, and ArcelorMittal Executive Chairman Lakshmi N. Mittal.   

Among other investments in GIFT City, Japan’s Mizuho Bank is setting up an IFSC banking unit, while the UAE-based Transworld Group plans to start aircraft and ship leasing. 

Meanwhile, GIFT City MD & Group CEO Tapan Ray said at the summit that ONGC Videsh will set up a finance company for treasury operations, while IT services major Wipro plans to set up tech-fin operations. Accenture, another IT services major, also plans to set up an office there, he added.

At a separate seminar on GIFT City at the summit, Union Finance Minister Nirmala Sitharaman said it is ideally poised to be the gateway for a financial and investment hub and will play a significant role in achieving India’s target of becoming a developed nation by 2047. She also announced that the government’s plans to build a diverse fintech laboratory at GIFT City, which it hopes to use as a platform for trading of green credits.

" I expect that in another one year or so, it (GIFT City) will have many more businesses, participants and better infrastructure "

Ajay Tyagi
Former Chairman
SEBI

GIFT City Chairman Hasmukh Adhia noted that the IFSC is the first choice for investors, attributing it to the exceptional financial regulations implemented there. 

He also underlined the need to improve social infrastructure in the city and said that the team was working on a second phase with about 2,000-3,000 acres of land that will be mainly for residential purposes and driven by private investors with top social infrastructure support provided by GIFT City. He added that the regulatory framework is being tweaked to facilitate aircraft leasing. 

GIFT City is primed for action. The GIFT IFSC, which is a special economic zone, currently houses 580 operational entities. These include three exchanges (including an international bullion exchange), 25 banks (nine of them being foreign ones), 29 insurance entities, two foreign universities, 26 aircraft lessors, 40 fintech entities and more than 50 professional services providers—such as consulting firms, law firms, and accountancy firms. At GIFT IFSC, the total banking assets are estimated at more than $52 billion and 80 funds have about $25 billion in committed investments. 

Domestic lenders such as State Bank of India and HDFC Bank have set up offices, as have foreign ones like HSBC and Deutsche Bank. Insurers like New India Assurance and ICICI Lombard are also present at the IFSC. Tech giant Google, fintech major Paytm as well as insurance behemoth Life Insurance Corporation of India have proposed investments. “I think Corporate India is now beginning to see the opportunity here of raising cost-efficient and timely capital for their businesses. This includes public sector undertakings,” says Rajaraman.    

What attracts businesses to GIFT City? As an IFSC, it has a special dispensation that allows for foreign currency transactions without capital controls. This enables businesses to operate from there and conduct international as well as India-facing operations in a more cost-efficient manner. “The inherent advantages that GIFT City offers are significant. India, with its young population, offers a huge skilled talent pool, and relatively lower operational costs. Hence, new businesses will find it an attractive proposition to operate from India and tap the massive market,” says Riaz Thingna, Partner at consultancy Grant Thornton Bharat.   

Currently, many India-centric businesses operate from jurisdictions like Mauritius, the UAE and Singapore to avail of tax-friendly policies. With GIFT City, these businesses will find it more beneficial to work within the same time zone and yet benefit from the tax breaks offered, which are comparable to these jurisdictions, he says.   

The government and IFSCA have helped create a very business-friendly environment consistent with the focus on ease of doing business. “This has already started attracting family offices, banks, reinsurance, investment funds like alternate investment funds, gold exchanges, and the like. International companies are also setting up Centres of Excellence in GIFT City and the trend is growing,” adds Thingna. 

Riaz Thingna
Partner
Grant Thornton Bharat

According to M.S. Sahoo, Distinguished Professor at National Law University Delhi and founder Chairperson of the Insolvency and Bankruptcy Board of India (IBBI), a market typically develops when it has regulatory comfort—and that comfort came with the setting up of the IFSCA. But GIFT City is a work in progress and will take time to fully bloom, he adds. “A lot of construction and infrastructure development is underway. Social infrastructure such as a relaxation zone at the riverfront is being developed for people to live there and enjoy their leisure time,” he notes, adding that overall, things are moving in the right direction and a big push has come from the government. 

GIFT City offers several advantages to businesses. Banks can set up branches as well as subsidiaries and get a 10-year tax exemption. “Tax holiday of 10 years for banks in GIFT IFSC translates to reduced borrowing costs, which may attract additional business for banks in GIFT IFSC given that borrowers will always tend to reduce borrowing cost and therefore borrow from banks in GIFT IFSC,” said a note by EY India. “This could create new opportunities for foreign banks and help Indian companies get funding for local acquisitions,” it said. And recently, the Central Board of Direct Taxes (CBDT) notified tax exemptions for foreign investors earning income from the IFSC in GIFT City through all capital market intermediaries. 

GIFT City is a work in progress...A lot of construction and infrastructure development is underway. Social infrastructure is being developed for people to live there

M.S. Sahoo
Distinguished Professor, National
Law University Delhi; Founder Chairperson
IBBI

A recent proposal to allow direct listing of Indian companies on exchanges operating out of GIFT City has also created considerable excitement among businesses. At the Vibrant Gujarat summit, the finance minister promised that this will be enabled at the earliest. There are expectations that it would kick off by April 2024. “Once notified, the unlisted companies, including Indian start-ups, shall be able to list on IFSC exchanges. Presently, Indian companies have done secondary listing of bonds of over $52 billion on the IFSC exchanges,” said the EY paper.         

Two of GIFT City’s exchanges—BSE’s India INX and NSE’s International Exchange—are likely to be merged by January-end. With the GIFT Nifty contract as the main product, average daily turnover is about $20 billion on the international exchanges. With dollar-denominated trades, foreign investors find it to be a more cost-effective option. 

Ajay Tyagi, former chairman of markets regulator Securities and Exchange Board of India, notes that capital market activities in GIFT City are currently centred around the GIFT Nifty. “The main and essential purpose of capital markets is to facilitate fundraising by the corporates. In some ways, this activity is yet to take off,” he says, adding that activities such as green debt raising and proposals for direct listing, reverse flipping of start-up companies that flipped abroad earlier, or enabling holding companies in foreign locations to move to GIFT City, are likely to help bolster capital-raising activities. 

Tapan Ray 
MD & Group CEO
GIFT City

Sundararaman Ramamurthy, MD & CEO of BSE, says GIFT City will aid a lot of entities, especially those that want to raise money in dollars. “GIFT City will be augmenting the domestic markets rather than competing with it,” he says.

The Union Budget 2023-24 also gave a significant push to GIFT City with proposals such as extending the period of tax benefit to funds relocating to the jurisdiction till March 31, 2025, creation of data embassies there, delegating powers under the SEZ Act to IFSCA to avoid dual regulation and setting up a single window IT system for registration and approval from IFSCA, SEZ authorities, GST Network, the Reserve Bank of India, Sebi and the Insurance Regulatory and Development Authority of India (Irdai).     

Apart from banking and financial services, plans are afoot to turn GIFT City into a global reinsurance and financial services back-office hub, as well as encourage ship and aircraft leasing. PM Modi had also recently spoken about turning GIFT City into a centre for sustainable finance amidst the growing need for green capital. Significantly, Irdai in August 2023 amended its order of preference to position India as a prominent global reinsurance hub; this is set to give a big boost to reinsurance operations in GIFT City. 

Hasmukh Adhia 
Chairman
GIFT City

Experts point out that some insurers as well as insurance intermediaries have already set up shop at GIFT City and there are already liberalised requirements for setting up a reinsurance entity in the jurisdiction. “In course of time, perhaps in the next three years or so, I expect many insurance companies, especially reinsurers, to set up base there. GIFT City can easily emerge as a reinsurance hub in this part of the world,” says G. Srinivasan, former CMD of New India Assurance.   

To develop home-grown talent for its ambitious plans, foreign universities have also been allowed to set up branches in GIFT City. Two Australian institutions—Deakin University and the University of Wollongong—are in the process of setting up campuses in GIFT City. 

Ship and aircraft leasing are the other activities that are gaining traction in GIFT City with many companies that were earlier leasing from foreign jurisdictions now doing so from here. Air India, for instance, has begun leasing aircraft from GIFT City and as many as eight ship lessors have also registered there.    

Jay Kothari, Global Head-International Business at DSP Asset Managers, says his company is committed to growing the international business (both outbound and inbound) and the GIFT IFSC structure presents a great opportunity to capitalise on this endeavour. “There is also an opportunity of setting up an investment management entity within Indian shores while operating under international best practices (like Singapore, Abu Dhabi Global Market, Dubai International Financial Centre). Hence this is taking advantage of both worlds—suitable products for different sets of investors and a portfolio management team based in India,” he says. His company opened a subsidiary office in GIFT City in November.   

While there is palpable excitement about GIFT City, there are some pain points. “Before setting up shop in the GIFT City, a foreign entity expects to see the shop of an Indian entity there first. This requires relaxing regulatory restrictions on Indian financial firms,” says Sahoo. He adds that contract enforcement could be a challenge. “It may be difficult to transplant the Indian legal framework, including contract law, company law, and tax laws, in the GIFT City. Either the legal framework, including the court system, needs to be suitably modified for GIFT City, or an exclusive legal framework is enacted for the GIFT City.” 

“There are a few challenges which need to be addressed like improvement in physical infrastructure, especially to attract expatriates to move and live in the vicinity,” says Thingna, adding that leisure zones, spas, residential buildings, and hospitals are under construction.    

Jay Kothari
Global Head-International Business
DSP Asset Managers

Tyagi believes that while building GIFT City has been a difficult and ambitious task, it is now poised for growth. “I expect that in another one year or so, it will have many more businesses, participants and better infrastructure,” he says. A study is also being conducted by consultancy McKinsey to benchmark and compare GIFT City to other similar global jurisdictions that should suggest ways to further improve the infrastructure and regulatory framework. In a move to attract more investments as well as international workers, the Gujarat government has also dealt with the issue of prohibition in the state and allowed liquor as a ‘wine and dine’ facility at restaurants, hotels and clubs operating in GIFT City. “It is a pragmatic and welcome decision by the Gujarat government,” says Tyagi.   

The state government has also recently unveiled a draft redevelopment plan for expansion of GIFT City, which is expected to have an eventual population of 500,000. Estimated at a cost of more than Rs 6,200 crore, this would be implemented over the next 15 years and the city would be expanded to 3,430 acres. It would house more residential and recreational facilities, riverfront development as well as the GIFT Eye—a large Ferris wheel on the lines of the London Eye. A metro line is also under construction and would provide easy connectivity to Ahmedabad for daily commuters.    

The expansion would be in line with expectations that GIFT City would start reaching its potential in the next five to 10 years. Rajaraman is confident that this would be the case in a matter of five years.   

Easing out the niggles may take time, but there is more momentum and confidence on the ground. “This was all village land earlier but now all big foreign companies are here. After 4 pm, it’s difficult to get a taxi from here as there is so much traffic,” sums up Naresh (name changed on request), the driver of this writer’s cab.   

While GIFT City is set to play the long game, it has reached the velocity required for take-off.