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What is GIFT City? What is the Current Status of the Project?

Editor, TRANSFIN.
May 27, 2021 9:23 AM 4 min read

14 years since it was conceived as an international financial services centre, India's answer to Singapore is yet to take flight.

What is GIFT City?

The Gujarat International Finance Tec-City was envisioned during the Vibrant Gujarat Global Investor Summit of 2007. It was touted as India's first business district housing an International Finance Service Centre (IFSC) and special economic zone (SEZ) for domestic and international financial services.

Located along the Sabarmati River near Gandhinagar, the greenfield smart city is around 12 km from Sardar Vallabhbhai Patel International Airport.

Planned on 886 acres of land, the city’s plans include office spaces, residential apartments, schools, hospitals, hotels, clubs and recreational centres as per the walk-to-work model.

Thought of as a Central Business District (CBD), GIFT City was inspired by the success of financial hubs like Singapore, London, Hong Kong, Dubai and Tokyo, and aspired to be “at or above par'' these metropolises. In fact, much of GIFT’s initial planning was done by the same architectural firm that designed modern-day Shanghai.

As an SEZ, it has its own set of rules and regulations i.e. it is an offshore jurisdiction with special laws and sops to attract foreign nationals and capital flows.

 

Gifts for Investing in GIFT

Due to Global Financial Crisis (GFC)-induced delays, land allotment began in 2011. But things didn't really take off from there. Onground work took another year to start and special business regulations were announced four years later in 2015! Till then the project was supported by the Gujarat government but in the years since the Union Budget has taken onus of financing its development.

FYI: Last year, the beleaguered IL&FS sold its 50% stake in GIFT to the Gujarat government to trim its debt, making the greenfield project an entirely state-owned one.

In 2015-16, Finance Minister Arun Jaitley said the Government would work actively to develop GIFT into an International Finance Centre. The following fiscal, a slew of incentives was announced when Security Transaction Tax, Commodity Transaction Tax, DDT and LTCG were waived off for the project. This was followed by the institution of a unified regulator for the IFSC and further tax relief.

 

What’s the Current Status?

All in all, about 20% of the proposed CBD has been completed as of today. The biggest employers are Bank of Baroda, TCS and Bank of America.

The ₹4,000cr ($550m) Phase II of the project, albeit delayed by six years, commenced in January this year. Phase I is still under various stages of development. About ₹2,000cr ($275m) has been spent and investments worth ₹11,000cr ($1.5bn) have been attracted so far.

When it comes to meeting targets, about 11,000 people work in GIFT City today, 148 companies are registered in the SEZ, and there are 14 multi-storeyed projects. For context, Phase I was supposed to create 30,000 jobs and the original timeline stipulated 10 lakh jobs and 110 skyscrapers by 2020.

 

Why are Things Taking So Long?

It is true that some of the factors such as the GFC and the COVID-19 pandemic were beyond anyone’s control.

But there are structural issues which continue to plague. The inflexibility of Rupee for one i.e. Restrictions on certain overseas transactions, the slow pace of easing regulations, multiple delays, and the shadow banking crisis that hit IL&FS.

Or perhaps the initial targets were just too ambitious to begin with. GIFT City was envisioned as a first-world oasis in a low middle-income nation. It would have facilities not found in even the most developed Indian cities - things like drinkable tap water, an underground utility tunnel for electricity, garbage chutes and a district cooling system, among others.

And in hindsight, expecting foreign IT and financial services workers to relocate to an underdeveloped corner of a teetotalist-by-law state might have also been asking for too much.

That said, attempts are being made to accelerate progress. The FY22 Budget included tax incentives for foreign funds to entice them to relocate to GIFT City. An international bullion exchange is expected to start trading in mid-2021. The NSE, MCX and BSE have agreed in principle to form an exchange within the CBD. A fintech hub is also being set up with the help of iCreate, Bank of America and possibly also the Asian Development Bank. Zerodha co-founder Nikhil Kamath will also soon launch the project’s first Alternate Investment Fund (AIF) named True Beacon Global.

Speaking of which...

 

What are AIFs?

Unlike conventional investments like stocks, an AIF is a privately pooled investment vehicle that collects money from “sophisticated private investors”. They include private equity, venture capital, hedge funds, angel funds etc.

 

AIFs and GIFT City

Since 2015, SEBI and the Government have championed AIFs at GIFT IFSC. The establishment of the IFSC Authority was a step in this direction. AIFs elsewhere have to answer to RBI, SEBI, IRDA and PFRDA; at IFSC, the IFSC Authority ensures single-window clearance.

AIFs at IFSC also enjoy a more relaxed regime for deployment of funds, co-investments, leverage and taxation. Furthermore, investment caps have been relaxed vs onshore vehicles, permitting fund managers to invest more capital in a company without concern for diversification limits.

Many of the fund managers expected to set up shop in GIFT City are hedge funds, so they fall under Category III. As such, there are expectations for more incentives for that bracket.

 

What Next?

Going forward, can we expect more activity and haste with regard to the GIFT City project? The recent bustle notwithstanding, the past decade’s record of incessant shilly-shallying doesn’t give one much hope.

Moreover, with the economy as a whole struggling to get back on its feet and the Government’s coffers hollow, an entirely state-backed initiative might be set up for even more delays and dallying. Unless, perhaps, the project is revised along a public-private partnership model and an honest attempt is made to actually meet the targets on paper at the earliest.

FIN.
 

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