India’s newest financial center rises from the scrubland near the banks of the Sabarmati River, once dominated by wading birds and grazing buffalo.
In the state of Gujarat, just a few glass-fronted towers house the 20,000 employees of companies like JPMorgan Chase & Co. and HSBC Holdings Plc that commute every business day. Its full name is Gujarat International Finance Tec-City, but it is better known as GIFT City. It occupies 886 acres between Gujarat’s capital, Gandhinagar, and Ahmedabad, its largest city. In October, bankers handled a total of $33 billion here.
What attracts these companies? An exemption from the many rules and taxes that hinder business and trade in the rest of India. GIFT City is an experiment in free markets nestled within a $3 trillion economy, one of the world’s fastest growing, that has long been reluctant to let its national currency, the rupee, become a game of international investors. The aim is to create a welcoming place where India-centric trade that has moved to Dubai, Mauritius or Singapore can come home.
At first, Gujarat seems like an unlikely location. On India’s west coast, it is the ninth most populous state and, as a mark of respect for Mahatma Gandhi, who was born in Gujarat, bans the sale of alcohol, the lubricant for many financial deals. Narendra Modi began planning GIFT City in 2008, when he was still the state’s chief minister, and his ascension to prime minister in 2014 allowed him to give the project more political support and a higher profile. In a speech in July to bankers, regulators and executives from India and abroad, he proclaimed that “India’s vision of the future is associated with GIFT City.”
The Modi government has offered a number of incentives, including a 100% tax break for a decade to companies setting up within the centre’s International Financial Services Center (IFSC). Rules are being changed to encourage Indian companies to charter ships and aircraft from GIFT City instead of foreign shores. Foreign universities will be allowed to circumvent regulations to open local campuses, and companies can use an international arbitration center to bypass India’s notoriously poor contract enforcement mechanisms.
A key concern the financial center wants to address is the lack of full convertibility of its Indian currency. Converting money into foreign currencies requires cumbersome documentation, and this has pushed trading of rupees and financial assets denominated in rupees to offshore centers that Indian regulators cannot control. But at GIFT City most of these rules do not apply, allowing onshore trading in key currency derivative contracts, which can offset some of the effects that offshore operations have on the rupee’s exchange rate.
Another product has migrated to the financial center: a popular derivative based on a benchmark of Indian stocks that was listed 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 connection, to allow global investors to trade in derivatives of stocks listed on the Indian market without the need for settle in India.
Trade volumes have increased since the Indian government created a single regulator, the IFSC Authority, 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 center rose to $14.6 billion, from $3.4 billion two years earlier, banks’ cumulative derivatives transactions rose to $466 billion, of $22 billion, and cumulative banking transactions rose to $303 billion. starting at $45 billion.
“Beyond the shores of India, in some of those centers where India-centric businesses developed, they may notice that something is happening and things may not be the same in the future,” says Injeti Srinivas , president of the IFSC Authority. “Business gravitates towards IFSC”.
A new international bullion exchange will allow qualified jewelers to directly import gold into India through GIFT City, a change from current rules that only allow certain banks and designated agencies approved by the central bank to do so. This easing of restrictions will widen the importer base in India, the world’s second largest consumer. An aircraft leasing and financing business is operating in GIFT City to take advantage of demand in one of the world’s most popular aviation markets for new aircraft orders. Boat rentals will start soon.
In July, JPMorgan and Deutsche Bank AG began operations at GIFT City. JPMorgan will initially offer its clients currency derivatives and wants to leverage its position as one of the largest providers of physical bullion in the country. Deutsche Bank aims to tap into the growing 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, signed an agreement to provide capital markets expertise to GIFT City.)
“We believe the GIFT City policy is a calibrated approach towards the internationalization of the rupee,” says Srinivasan Varadarajan, managing director of global emerging markets at Deutsche Bank in Mumbai. “It is similar in some features to what has been seen in Asia over the past decade.”
Jaxay Shah, founder and CEO of real estate developer Savvy Infrastructure Pvt., is one of the people betting on this growth. His company, which built the tower that houses the offices of Bank of America Corp. and the temporary headquarters of the IFSCA, has bought two nearby plots to double its holdings in GIFT City. “When else in my career would I have this kind of smart city, where there is an economic vision and no bureaucracy?” says Shah.
GIFT City is the first in India to offer district cooling, an energy efficient air conditioning system as well as central waste, water and electricity management. Although it offers beautiful streets and boulevards and pristine sports centers, in addition to recent additions that include a school and a hospital, workers often disappear in the evening, taking electric buses to homes in nearby towns that have services such as movie theaters and fast food restaurants.
Some younger executives in Mumbai, Delhi and Gujarat, who asked not to be identified because they were not authorized to comment, say they are often questioned on calls about whether alcohol will be allowed. Several policymakers and lawmakers told Bloomberg Markets they expect authorities to provide another exemption from the rules: allowing licenses to buy and consume alcohol. The state government realizes it needs to modify its clearance requirements to attract residents and ensure the project’s success, they say.
And that, in a nutshell, is the story of GIFT City: an oasis where businesses can escape the rules and bureaucracy of India. An attempt to return billions of dollars to land markets. A “sandbox” in which fintechs can play with new products with seamless links to global systems. Maybe even a glimpse of India’s future.