NEW DELHI: Once dominated by marsh birds and grazing buffalo, scrubland at the banks of the Sabarmati river is now the site of India’s newest financial centre.
The 20,000 employees of businesses such as JPMorgan Chase & Co. and HSBC Holdings Plc who commute to Gujarat each workday, are greeted by only a handful of glass-fronted structures. Gujarat International Finance Tec (GIFT) City is its full name, however, it is most popularly known as GIFT City. It encompasses 886 acres between Gujarat’s capital, Gandhinagar, and its largest city, Ahmedabad. Here, bankers managed a total of $33 billion as of October.
What attracts these businesses? A waiver from the numerous regulations and levies that impede industry and commerce in the rest of India. GIFT City is an experiment in free markets nested within a $3 trillion economy, one of the world’s fastest-growing, that has long resisted allowing its national currency, the rupee, to become a toy for foreign investors. The objective is to establish an environment where India-centric trade that has relocated to Dubai, Mauritius, or Singapore can return.
Gujarat initially appears to be an unusual destination. It is the ninth-most populous state on the west coast, and out of reverence for Mahatma Gandhi, who was born in Gujarat, it prohibits the selling of alcohol, the lubricant for many financial transactions.
In 2008, when he was still Chief Minister, Narendra Modi began planning GIFT City. Upon becoming Prime Minister in 2014, he was able to give the project additional policy support and a higher profile. In a July address to bankers, regulators, and executives from India and abroad, he declared, “The vision of India’s future is tied to GIFT City.”
The administration of Prime Minister Modi has offered a variety of incentives, including a tax vacation of 100 percent for ten years to enterprises that establish themselves within the International Financial Services Center, or IFSC.
To encourage Indian enterprises to lease ships and aircraft through GIFT City rather than on foreign soil, the regulations are being modified. Foreign colleges would soon be permitted to circumvent rules in order to establish local campuses, and businesses will be able to use an international arbitration centre to circumvent India’s infamously weak contract enforcement.
The inability of India’s currency to be fully convertible is a fundamental worry that the financial centre tries to overcome. Because converting money into foreign currencies involves costly documentation, trading in rupees and rupee-denominated financial assets has shifted to unmonitored offshore hubs. However, the majority of these limitations do not apply within GIFT City, allowing onshore trading in significant currency derivatives contracts, which can mitigate some of the effects of offshore trades on the rupee exchange rate.
A popular derivative based on a benchmark index of Indian companies that was traded on the Singapore Stock Exchange has also shifted to the financial centre. The National Stock Exchange created a cross-border trading link with Singapore in 2022, similar to the Hong Kong-Shanghai link, so that worldwide investors could trade stock derivatives listed on the Indian market without establishing a presence in India.
Since the government founded the IFSC Authority in 2020 to expedite licences and control in the special economic zone, trading volumes have surged. In October, average daily turnover on the financial center’s two stock exchanges increased from $3.4 billion to $14.6 billion. Prior to two years ago, cumulative derivative transactions by banks increased from $22 billion to $466 billion, while cumulative banking transactions increased from $45 billion to $303 billion.
A new international bullion exchange will allow qualified jewellers to directly import gold through GIFT City, a shift from the present laws that let only certain banks and designated agencies authorised by the central bank to do so. This relaxation of regulations is expected to increase the number of importers in India, the world’s second-largest consumer market. GIFT City is home to an aeroplane leasing and finance company that serves one of the world’s hottest aviation markets for new-aircraft orders. Soon, ship leasing will commence.
JPMorgan and Deutsche Bank AG began operations in GIFT City in July. JPMorgan will initially sell foreign exchange swaps to clients and hopes to capitalise on its position as one of the country’s major providers of physical bullion. Deutsche Bank hopes to capitalise on the growing number of Indian businesses that require cross-border financial services, such as hedging and financing. In 2018, Bloomberg LP, the owner of Bloomberg Markets, agreed to offer GIFT City with capital markets expertise.
GIFT City is the first in India to provide district cooling, an energy-efficient air conditioning system, in addition to centralised waste, water, and electricity management. Even though it has lovely streets and boulevards, immaculate sports facilities, and recent additions such as a school and a hospital, workers tend to leave in the evenings, taking electric buses to adjacent cities with amenities such as movie theatres and fast food restaurants.