Sections

Search

17 September 2015 | E-Paper

Home Politics
Last Modified: Wed, Feb 18 2015. 08 53 PM IST

GIFT City, an audacious idea

Gujarat accelerates work on the eight-year-old project billed as Indias first global
financial services centrea potential rival to Dubai, Hong Kong and Singapore. We
chronicle the scale of the challenge

38

13

Enter your email

Newsletter
Maulik Pathak | Ashish Kumar Mishra

Of the 880 acres allotted to Gujarat International Finance Hi-Tec (GIFT) City, which is being
projected as the first of 100 smart cities that the BJP-led government wants to build, about 250
acres is earmarked for the international financial services centre.

Ahmedabad/Mumbai: Something is stirring at the Gujarat International Finance HiTec (GIFT) City. After a long, long time. Eight years, to be precise.
Late last month, BSE Ltd, which runs Asias oldest stock exchange in Mumbai, said
it will set up an international exchange at GIFT City.
Estimated investment: Rs
1.
50 crore.
Around the same time, the BSE Brokers Forum, an association of brokers who trade
on the exchange and hold almost 40% equity in it, said it will set up its back-office
operations at the financial enclave, at a cost of Rs
2
.00 crore.
Then, again, GIFT, whose first phase is due to be completed by 2016, recently found a
place in KPMG Internationals Infrastructure 100: World Markets Report. This report
highlights key trends driving infrastructure investment across the globe.
The US$20-billion mega GIFT City project combines state-of-the-art connectivity,
infrastructure and transportation with sustainable, environmentally-sensitive
growth. Although only two of the planned buildings have been constructed, new
Indian Prime Minister Narendra Modi backs the initiative, which is designed to
change the way India thinks about contemporary urban planning, the report says.

Well, thats not all.

In the last year or so, several banks have picked up small chunks of land at the
project site. These include State Bank of India, the countrys largest lender; ICICI
Bank Ltd and HDFC Bank Ltd, Indias largest and second largest private sector banks
by assets; and Yes Bank Ltd, the countrys youngest lender.
Needless to say, thanks to this sudden, peaking interest, R.K. Jha, 68, finds himself a
relieved man.
The managing director of GIFT, Jha, whos been around with the project from Day
One, says it has finally taken off. So much so that the first phase is sold out.
Now, all of this brings us to a simple question; what gives?
Well, Narendra Modi.
GIFT City is one of the pet projects of Modi. It was in June 2007, when he was
Gujarat chief minister, that he first proposed GIFT City as an international financial
services centre (IFSC).
Set up on the banks of the Sabarmati river, near Gujarats capital, Gandhinagar, Modi
pitted GIFT as a rival to the IFSCs of Dubai, Singapore and Hong Kong. And if you
were to stretch your imagination a biteven New York and London.
Back then, Modi nursed a burning ambition to sell Gujarat to the world as the most
favourable investment destination in India.
The idea of GIFT City made for a good sell. Plus it was also a reply to his counterpart
in Maharashtra, the late Vilasrao Deshmukh, who had wanted to turn Mumbai into
an international financial centre.
Except that, beyond an idea, an earmarked special economic zone (SEZ), a
management team, design contracts that got mired in controversy and a website,
GIFT City never really took off.
And no prizes for guessingneither did Deshmukhs dream of turning Mumbai into
a global financial hub.
Now, all of this changed last year, when Modi became Prime Minister.
GIFT City is now being projected as the first of the 100 smart cities that the
Bharatiya Janta Party (BJP)-led government wants to build.

To be able to do that, the IFSC guidelines (read: essential legal framework) are
expected to be announced in the 2015 budget that will be presented by finance
minister Arun Jaitley on 28 February.
Speculation has been doing the rounds that the government will tweak the Foreign
Exchange Management Act (FEMA) to accommodate the special needs of an IFSC.
The Reserve Bank of India (RBI), too, has been kept in the loop.
Hasmukh Adhia, financial services secretary in the Union finance ministry, says
that the process of drafting these guidelines has been on for a while and once they
are in place, GIFT City will be good to go.
Jha has been waiting for this day.
We have been in talks with the National Stock Exchange and they are also
exploring to set up an international exchange similar to BSE, he says. Global
exchanges like New York Stock Exchange and London Stock Exchange who operate
through brokers have also evinced interest in setting up international operations at
our SEZ. All are awaiting the IFSC rules to be announced.
To be sure, the regulations are yet to be announced, and a lot rests on the finer
details. But the governments intention is clear.
In the absence of an IFSC in India, the country has lost roughly 50% market share in
the two most important India-related financial products. These are the rupee-dollar
futures contracts traded on the Dubai Gold and Commodities Exchange (DGCX) and
the Nifty futures contracts traded on the Singapore Exchange (SGX), which are
popular among international traders. With an IFSC, this trade could move to India.
To GIFT City. And thats just for starters.
The possibilities
As you travel about 20km from Ahmedabad towards Gandhinagar, two 28-storey
buildings stand out in the skyline.
These buildings, the tallest in the state, are symbolic of the Rs
7
.8,000 crore GIFT
project. As things stand today, theres little thats going on, other than construction.
The buildings themselves are largely unoccupied, except for six companies that
have begun operationsGujarat Electricity Regulatory Commission, Syndicate
Bank, IL&FS group, and (n)Code Solutions, an IT arm of Gujarat Narmada Valley
Fertilizers and Chemicals (GNFC). Adjacent to them, a temporary office has been
constructed, which houses the staff of GIFT Co. Ltd.

The company is a 50:50 joint venture (JV) between Infrastructure Leasing and
Financial Services Ltd (IL&FS) and the state government-owned Gujarat Urban
Development Co. (GUDC). Of the 880 acres of land allotted to GIFT City, about 250
acres is earmarked for the IFSC.
This will be treated as an SEZ. The project envisages setting aside 12 million sq. ft in
the first phase, of which about 1.2 million sq. ft has been constructed.
But once the project is completed, about 125 buildings with a built-up area of 62
million sq. ft are expected to come up.
It will be fair to say that the scale of GIFT City is huge, almost five times Mumbais
financial district, Bandra-Kurla Complex. But a critical question remains: what
exactly can take place inside this IFSC?
On the face of it, a lot.
From offshore banking to currency convertibility, re-insurance, commodity and
securities trading and capital raising; just about every activity which takes place in
IFSCs around the globe.
Almost everything can be done here, which will be complementary to what
happens in Mumbai, says a board member of GIFT Co., requesting anonymity
because he is not authorized to speak with the media. See, finance is locationneutral and quite a few parts are not client-facing. GIFT could be the back office of
the world. Plus you have a lot of offshore activities that can happen here.
Ashish Chauhan, managing director of BSE, believes GIFT City will serve a few other
critical purposes. For instance, get back what has been lost.
If you look around, in Dubai and Singapore, the best derivative traders and
investment bankers are all Indians, he says. Both these centres developed because
of Indian needs. Because a lot of foreign institutional investors (FIIs) and foreign
investors do not like to be registered in India. So if GIFT provides a separate
jurisdiction, where it is easy to do business because the tax laws are relaxed, then I
see it doing really, really well.
On paper, sure. But for an international exchange to come up in GIFT and, for that
matter in India, certainly not having high volumes would be a concern, right?
Initially, yes, says Chauhan. But you have to look forward. India over the next 20
years is going to be the next big market. For that, we will need to raise funds. Our
companies will need to raise funds. So GIFT can become for India, what Hong Kong

became for China.

So an Indian company in search of funds, rather than looking at Singapore or
Londons Alternative Investment Market, could look at listing on GIFT?
Yes.
Of course, theres much more to an IFSC than an exchange. Simply put, it is a
financial ecosystem comprising a majority of the 100 best banks in the world, worldclass financial professionals, infrastructure and rules and regulations that are on
par or better than competing centres.
For KPMG, it is the vision and the scale of the project that make it promising. In its
report, factors such as the size, feasibility, complexity, impact on society and
innovation were taken into account while identifying the top 100 infrastructure
projects, says Arvind Mahajan, head of the government and infrastructure practice
at KPMG in India.
GIFT City has made significant progress, and is in the right direction of taking off,
he says. Modi was perhaps involved with this project right from the very beginning.
GIFT City will evolve over a period of time once it gathers a certain momentum and
gains critical mass. It will play a much larger role in the domestic and international
financial services sector.
The opportunity
Then, again, nothing restricts GIFT from moving beyond financial services. It will
also house information technology (IT) and IT services companies. After all, India is
the offshore IT destination of the world. And almost 40% of the business is driven by
the banking and financial services sector.
As the offshore and domestic markets continue to grow, we believe that India is
very well positioned to capture a large portion of this opportunity, says Jha.
There are already some takers. In December 2014, Mumbai-based real estate firm
Hiranandani Constructions Pvt. Ltd (HCPL) announced it will set up a commercial
complex in GIFT City with an investment of Rs
1.
25 crore to facilitate IT and financial
services. Then, again, in October last year, Bengaluru-based realty firm Brigade
Group said it will invest Rs
5
.00 crore in GIFT City for development of commercial,
residential, retail mall and hotel projects in SEZ and non-SEZ areas in GIFT City.
It is another matter altogether that the success of an IFSC cannot be measured in
terms of indicators like area sold to companies or the number of back offices. The

key indicator will be transactionsthe amount and nature of financial transactions

which will determine its success. And for that, a critical question must be asked,
how does the project stack up against Dubai and Singapore?
Jha says GIFT will score well on domestic demandthe one thing India has in
abundance.
GIFT City has the potential of $38-40 billion in terms of foreign exchange, he says.
And from a tax point of view, GIFT has a lot to cheer about. So companies that
choose to set up in the enclave will pay no registration fee, no excise duty, no
customs duty, no sales tax, no stamp duty on mortgages; they will have exemption
from income tax; at least for the first five years of operation. Everything that a
manufacturing SEZ offers.
Ironically, therein lies the problem with GIFT City. It is no manufacturing SEZ. It is
purported to be a financial SEZ. Where, within the confines of a brick and mortar
wall, money will move in and outglobally. India hasnt attempted anything like
this before. That it is finally doing so should be lauded. But then, it must also be
examined with a good measure of skepticism. It is after all, in its current form,
nothing but an audacious idea.
The flipside
In the world of IFSCs, the opinion of Zyen is respected. Zyen is a commercial think
tank, consultancy and venture firm headquartered in London, and is best known for
its Global Financial Centres Index.

MintAsia reached out to Mark G. Yeandle, associate director at the firm, to check if
GIFT City has been on his radar. His reply: I am afraid I have not heard of it.
That said, more importantly, in the world of IFSCs, it is quite difficult to replace
incumbents. If liquidity is settled in one place, then it can be hard to move unless
there are some very compelling reasons, said Yeandle.
Why would a bank move from Mumbai to Gujarat IFT-C? Mumbai used to compete
with western centres for back-office operations and the main factor was cost. The
cost differential has now decreased.
The factors of competitiveness are many. From business environment factors to
financial sector development, infrastructure, human capital and reputational
factors.

To put it simply, what will GIFT offer, thats already not there in Singapore or Dubai?
As things stand today, there are no easy answers. And then, again, the biggest
stumbling block for GIFT could be regulation. See, anybody who comes here needs
to see a functioning city, said the board member quoted above.
Right now, all they can see are physical milestones. Because, since Day One, there

has been no legal clarity on this project. So what will RBI (Reserve Bank of India)
say? What will SEBI (Securities and Exchange Board of India) say? Today, there are
no rules which say XYZ activity is allowed in SEZ. That needs to come first. And that
has to be best in the world.
Pradip Shah, who runs IndAsia, a corporate finance, private equity, and investment
advisory business, says this argument is sound. And he should know. Shah is an
expert on financial services and IFSCs, and was the founder-managing director of
Crisil Ltd, Indias first and largest credit rating agency, and also assisted in the
founding of Housing Development Finance Corp. Ltd (HDFC), Indias first retail
housing finance company, in 1977.
If the legal framework is sound, he says, in terms of acceptability to investors for
whom it is intended, then there is an opportunity to rival major international
financial centres and compete with them effectively.
A simple case in point, which helps explain this best is the issue of minimum
alternate tax (MAT), one that has been hanging fire for a while. As things stand
today, companies setting up operations at GIFT City will have to pay MAT at 18.5%.
This is very high in comparison with Singapore that has a tax rate of about 10% on
business profits and Dubai, which is tax-free.
For GIFT City to take on global competitors, MAT has to go down substantially,
says Jha. GIFT is a new place, and firms who have their operations in Dubai or
Singapore IFCs are required to make fresh investments to set up operations here.
We have urged the central government to consider our case and reduce MAT.
When and, if at all, this will come through, is anybodys guess. Stretch your
imagination a bit and youll realize its the same with GIFT City.
Maulik Pathak |

Ashish Kumar Mishra

TOPICS: GIFT CITY GUJARAT INTERNATIONAL FINANCE HI-TEC CITY

NARENDRA MODI

INTERNATIONAL FINANCIAL SERVICES CENTRE BSE

HOME

First Published: Wed, Feb 18 2015. 08 53 PM IST

MORE FROM LIVEMINT

Ola, Uber make a U-turn, reverse business model

How much do Delhis top advocates charge?

How the rich became morally poor in one week

Animals caused Earths first mass extinction, not catastrophe

FROM THE WEB

SponsoredLinks byTaboola

Share Your Datsun Story Using #datsunstories_in to See it Turned into a Movie
DATSUN

28 celebrities who had babies before marriage

MSN

SIP Can Make Investors Rich in 3-5 Years

MyUniverse

How 5G will Power the Future Internet of Things

IQ Intel

Do You Want to Cut Your 3 - 7 Yr Olds TV Addiction?

Flintobox

5 Fashion Blunders by Bollywood Celebrities

Ask me.com

5 Ways to Increase Your Annual Income

Scripbox

All You Need to Know About the New Tata Nano GenX
Autoportal

LATEST NEWS

BlaBlaCar raises $200 million

Gold regains sheen on global cues, silver up on strong demand

NSE to auction investment limits for Rs684 crore for govt bonds

Pakistan violates ceasefire again in Poonch

Meat ban: SC rejects plea against Bombay HC order

Chaos at Hungary border as police tear gas migrants

COMPANIES | OPINION | INDUSTRY | POLITICS | CONSUMER | LOUNGE |

MULTIMEDIA | MONEY | SITEMAP

Subscribe | ContactUs | MintCode | Privacypolicy | TermsofUse | Advertising | MintApps |

AboutHTMedia | Jobs | HindustanTimes | Syndication | MintonSunday | RSS
Copyright 2015 HT Media Ltd. All Rights Reserved