India has Big hub Plans for New Financial Centres. Will they follow Dubai or Singapore?
India’s newest financial centre is emerging from scrubland close to the Sabarmati River, where marsh birds and grazing buffalo formerly reigned. The 20,000 workers who come into Gujarat each workday from corporations like JPMorgan Chase & Co. and HSBC Holdings Plc are greeted by just a few glass-fronted towers.
Gujarat International Finance Tec-City is the official name, but GIFT City is how most people refer to it. Between Gujarat’s largest city, Ahmedabad, and Gandhinagar, its capital, it spans 886 acres. A total of $33 billion was being managed by bankers as of October.
What attracts these businesses? An exemption from the plethora of regulations and levies that restrict trade and business throughout the rest of India. A $3 trillion economy, one of the fastest-growing in the world, GIFT City is an experiment in free markets that has long been wary of letting its national currency, the rupee, become a toy for foreign investors.
The goal is to establish a friendly environment where India-centric trade that has migrated to Singapore, Dubai, or Mauritius can return. Gujarat originally seems to be an unusual destination. It is the ninth-most populated state on the west coast, and it forbids the sale of alcohol out of respect for Mahatma Gandhi, who was born there.
Alcohol is often operated as a lubricant in business transactions. While still the Chief Minister in 2008, Narendra Modi began to plan GIFT City. After becoming prime minister in 2014, he was able to give the project more policy support and a higher profile. He stated that “the vision of India’s future is associated with GIFT City” in a speech he gave in July to bankers, regulators, and leaders from both India and outside.
The government of Prime Minister Modi has delivered numerous incentives, such as a 100% tax break for ten years, to companies that establish themselves within the International Financial Services Center, or IFSC, of the hub. To encourage Indian corporations to lease ships and aircraft through GIFT City rather than on foreign soil, rules are being changed.
In the future, foreign universities will be able to circumvent restrictions to establish local campuses, and businesses will be able to use an international arbitration venue to skirt India’s infamously ineffective legal system.
The financial centre is particularly concerned about India’s currency’s partial inconvertibility. Due to the complicated paperwork required to convert money into foreign currencies, trading in rupees and financial assets denominated in rupees have moved to offshore locations that Indian regulators are unable to attend.
However, most of these regulations don’t apply in GIFT City, allowing onshore trading in important currency derivatives contracts that can partially offset the effects of offshore trades on the rupee exchange rate.
Another device that was traded on the Singapore Stock Exchange and was based on a benchmark index of Indian stocks has moved to the financial centre. Similar to the Hong Kong-Shanghai connection, the National Stock Exchange created a cross-border trading link with Singapore in 2022 to allow foreign investors to trade stock derivatives listed on the Indian market without having to have a presence there.
Since the government established the IFSC Authority in 2020 to unify oversight and approval processes in the special economic zone, trading activity has surged. The two stock exchanges in the financial district’s average daily turnover increased to $14.6 billion in October from $3.4 billion.
Before that, total banking transactions increased to $303 billion from $45 billion and cumulative derivative transactions by banks increased to $466 billion from $22 billion.
According to Injeti Srinivas, chairman of the IFSC Authority, “outside the borders of India, in some of those centres where India-centric business thrived, they can see that something is occurring, and things may not be the same in the future.” The IFSC is attracting business.
In contrast to present regulations that only allow some banks and selected institutions permitted by the central bank to do so, the new international bullion market will help certified jewellers to directly import gold through GIFT City. The second-largest client country in the world, India, will have a larger base of importers thanks to the relaxation of limitations.
To capitalize on the need for new plane purchases in one of the world’s hottest aviation sectors, an aircraft leasing and financing company is functioning in GIFT City. Soon, ship leasing will begin.
JPMorgan and Deutsche Bank AG began operating in GIFT City in July. JPMorgan plans to use its position as one of the biggest suppliers of actual gold in the country to leverage its debut offering to customers of foreign currency contracts.
The growing number of Indian businesses that need cross-border financial services, including financing and hedging, is where Deutsche Bank hopes to capitalize. (In 2018, Bloomberg LP, the proprietor of Bloomberg Markets, signed an account to submit GIFT City capital markets knowledge.)
Srinivasan Varadarajan, managing director in global developing markets at Deutsche Bank in Mumbai, believes that the GIFT City program is a balanced policy toward the internationalization of the currency. It compares what has been happening in Asia over the past ten years in certain ways.
Among those placing bets on this expansion are Jaxay Shah, the founder and managing director of the real estate developer Savvy Infrastructure Pvt. His company, which constructed the tower that houses the temporary headquarters of the IFSCA and the offices of Bank of America Corp., has doubled its stakes in GIFT City by purchasing two adjacent properties. When else in my professional life would I see a smart city with an economic vision and less red tape? Says Mr Shah.
GIFT City is the first in India to provide central waste, water, and electricity management in addition to district cooling, an energy-efficient air conditioning system. Even though it has lovely avenues and boulevards, spotless sports facilities, and recent additions like a school and a hospital, workers often leave the city in the dark to live in surrounding cities that provide amenities like movie theatres and fast-food restaurants.
Younger executives in Mumbai, Delhi, and Gujarat demanded anonymity because they were not authorized to discuss the claim that they are often asked in conversations whether alcohol will be allowed.
Many lawmakers and policymakers told Bloomberg Markets that they expect the government will deliver yet another rule exemption—to allow licenses to purchase and consume alcohol—from the law.
According to them, the state administration is aware that to draw inhabitants and ensure the project’s success, it must modify its teetotaller standards.
And thus, in a nutshell, this is the tale of GIFT City: a haven where businesses may flee regulations and red tape. a move to entice billions of dollars back to domestic markets. a “sandbox” where fintech can experiment with innovative products that have smooth connections to international networks. even a view of India’s future.
Edited by Prakriti Arora
