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EconomyCan Gift City give India a Singapore or Dubai-like industrial hub?

Can Gift City give India a Singapore or Dubai-like industrial hub?

Investors are drawn to Gift City due to exemptions offered from the plethora of rules and taxes that impede business and trading in the rest of the country

The Gift — acronym for Gujarat International Finance ­Tec-­City — City in Ahmedabad used to be in the news when then-Chief Minister Narendra Modi was rising on the national scene as an inalienable part of his much-touted “Gujarat model”, with the promise that it could usher in a fresh era of industrialisation in the country, should he be given a chance to lead the country. Bloomberg has done a story on Gift City, which lies near the state capital Gandhinagar, seeing a renewed promise in its development, much as the complex stopped grabbing headlines years ago.

“India’s newest financial hub is rising from scrubland near the banks of the Sabarmati River once dominated by marsh birds and grazing buffalo.
In the state of Gujarat, just a few glass-fronted towers greet the 20,000 employees of companies such as JPMorgan Chase & Co and HSBC Holdings who commute each weekday,” Bloomberg has reported. This is about the 886 acres between Gujarat’s capital, Gandhinagar, and Ahmedabad, its biggest city. As of October, bankers managed a combined $ 33 billion here.

Investors are drawn to Gift City due to exemptions from the plethora of rules and taxes that impede business and trading in the rest of India. Gift City is an experiment in free markets nestled inside a $ 3 trillion economy — one of the world’s fastest-growing — that’s long been reluctant to let its national currency, the rupee, become a plaything of international investors, the news agency says. The goal is to create a welcoming place where India-centric trading that’s moved to Dubai, Mauritius or Singapore can return home, it says.

The agency says that there are odds that go against the idea of turning the spot into an industrial hub — for example, the prohibition of alcohol, which Bloomberg belies facilitates many a financial deal. Recalling that Modi had started planning Gift City in 2008, it reminds readers that in a July speech to bankers, regulators and executives from India and overseas, he had proclaimed that “the vision of India’s future is associated with Gift City”.

Making Gift City attractive to investors

The Modi government has offered many incentives, including a 100% holiday for a decade to businesses that set up within the hub’s International Financial Services Center (IFSC). Further, the government is changing rules to encourage Indian companies to lease ships and aircraft through Gift City rather than on foreign shores. It will later let foreign universities bypass regulations to open local campuses. Then, companies can use an international arbitration centre to avoid India’s notoriously poor contract enforcement mechanisms.

To address India’s lack of full convertibility of its currency, leading to cumbersome documentation for currency conversion, which pushes trading in rupees and rupee-­denominated financial assets to offshore centres that Indian regulators can’t monitor, the government has ensured that most of these rules don’t apply within Gift City, thus enabling onshore trading in key currency derivatives contracts, which can counteract some of the effects that offshore trades have on the rupee exchange rate.

“Another product has migrated to the financial centre: a popular derivative based on a benchmark gauge of Indian stocks that were traded on the Singapore Stock Exchange. In 2022 the National Stock Exchange of India opened a cross-­border trading link with Singapore — similar to the Hong Kong-Shanghai connect — to allow global investors to trade stock derivatives listed on the Indian market without needing to set up shop in India,” Bloomberg reported today.

Results of relaxation

Trading volumes have increased since a single regulator, the IFSC Authority, was created by the Indian government in 2020 to streamline approvals and oversight in the special economic zone. In October, average daily turnover on the two stock exchanges in the financial centre climbed to $ 14.6 billion, from $ 3.4 billion two years before, cumulative derivative transactions by banks jumped to $ 466 billion, from $ 22 billion, and cumulative banking transactions rose to $ 303 billion, from $ 45 billion.

“Beyond the shores of India, in some of those centres where India-centric business developed, they are able to notice that something is happening, and things may not be the same in the future,” says Injeti Srinivas, the IFSC Authority’s chairman. “Business is gravitating toward IFSC.”

A new international bullion exchange will let qualified jewellers directly import to India through Gift City, a change from current rules permitting only some banks and nominated agencies approved by the central bank to do so. That loosening of restrictions is set to widen the importer base in India, the world’s second-biggest consumer. An aircraft leasing and financing business is operating in Gift City to tap into the demand of one of the world’s hottest aviation markets for new-plane orders. Ship leasing will start soon.

Appreciation

In July, JPMorgan and Deutsche Bank AG started operations in Gift City. JPMorgan will initially offer clients ­foreign exchange derivatives and wants to leverage its position as one of the largest suppliers of physical bullion in the country. Deutsche Bank aims to tap the rising number of companies in India that need cross-border banking services, ranging from hedging to financing. (In 2018, Bloomberg LP, the owner of Bloomberg Markets, entered into an agreement to provide capital markets expertise to Gift City.)

“We think the Gift City policy is a calibrated approach toward internationalization of the rupee,” says Srinivasan Varadarajan, a managing director in global emerging markets at Deutsche Bank in Mumbai. “It is similar in some characteristics to what has been seen in Asia over the last decade.”

Jaxay Shah, founder and managing director of property developer Savvy Pvt., is among the people betting on this growth. His company, which built the tower that houses Bank of America Corp. offices and the IFSCA’s temporary headquarters, has purchased two nearby plots to double its holdings in Gift City. “When else in my career would I get this kind of smart city, where there is an economic vision and no red tape?” Shah says.

Gift City is the first in India to offer district cooling, an energy-efficient air conditioning system, as well as central waste, water and management. Although it offers beautiful streets and boulevards and pristine sports centers, plus recent additions including a school and a hospital, workers tend to disappear in the evenings, taking electric buses to homes in nearby cities that have amenities such as cinemas and fast-food restaurants.

Some younger executives in Mumbai, Delhi and Gujarat, who asked not to be identified because they weren’t authorized to comment, say they’re often questioned on calls about whether alcohol will be permitted. Multiple policymakers and lawmakers told Bloomberg Markets that they expect authorities will provide yet another rule exemption—to allow licenses to buy and consume alcohol. The state government realizes it needs to amend its teetotaler requirements to attract residents and ensure the project’s success, they say.

That is the gust of the Gift City story — an oasis in which companies can escape India’s rules and bureaucracy. An attempt to lure billions of dollars back to onshore markets. A “sandbox” in which fintech can play with new products with seamless links to global systems. Perhaps even a vision for India’s future.

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