The newest financial centre in India is developing from scrubland at the banks of the Sabarmati River, which was formerly dominated by marsh birds and grazing buffalo.
Only a few glass-fronted skyscrapers welcome the 20,000 employees of corporations like JPMorgan Chase & Co. and HSBC Holdings Plc that commute in each workday in Gujarat. Gujarat International Finance Tec-City is its official name, however it is most popularly known as GIFT City. It spans 886 acres between Gujarat’s capital, Gandhinagar, and its largest city, Ahmedabad. Bankers here controlled a total of $33 billion as of October.
What attracts these businesses? Exemption from the numerous restrictions and levies that stymie industry and commerce in the rest of India. GIFT City is a free-market experiment nested within a $3 trillion economy—one of the world’s fastest-growing—that has long been hesitant to allow its national currency, the rupee, to become a toy for overseas investors. The purpose is to establish a friendly environment for India-centric commerce that has relocated to Dubai, Mauritius, or Singapore.
Gujarat appears to be an unusual destination at first glance. On India’s west coast, it is the ninth-most populated state—and, in honour of Mahatma Gandhi, who was born in Gujarat, it prohibits the sale of alcohol, the lubricant for many a financial transaction. Narendra Modi began building GIFT City while still the state’s chief minister in 2008, and his election as prime minister in 2014 allowed him to offer the project additional policy support and a bigger visibility. In a July speech to bankers, regulators, and executives from India and around the world, he declared that “GIFT City is synonymous with the vision of India’s future.”
Modi’s administration has provided a variety of incentives, including a ten-year tax break for enterprises who establish themselves within the hub’s International Financial Services Center, or IFSC. Changes are being made to the rules to encourage Indian corporations to lease ships and planes via GIFT City rather than on foreign borders. Foreign colleges would ultimately be permitted to circumvent rules in order to establish local campuses, and businesses will be able to utilise an international arbitration centre to dodge India’s infamously bad contract enforcement systems.
One major issue that the financial centre intends to solve is India’s currency’s lack of full convertibility. Converting money into foreign currencies necessitates time-consuming paperwork, which has driven trade in rupees and rupee-denominated financial assets to offshore locations that Indian regulators cannot supervise. However, most of these limitations do not apply within GIFT City, allowing for onshore trading in major currency derivatives contracts, which can offset some of the impacts of offshore trades on the rupee exchange rate.
Some younger executives in Mumbai, Delhi, and Gujarat, who requested anonymity because they were not allowed to discuss, claim they are frequently questioned on conversations about whether alcohol would be permitted. Several politicians and lawmakers told Bloomberg Markets that they anticipate authorities to grant another regulation exception, allowing licensees to buy and drink alcohol. According to them, the state administration recognises the need to modify its teetotaler regulations in order to attract inhabitants and secure the project’s viability.
In a word, that is the narrative of GIFT City: an oasis where businesses may escape India’s regulations and bureaucracy. An attempt to entice billions of dollars back into domestic markets. A “sandbox” in which fin techs can experiment with new products while remaining connected to global systems. Perhaps even a future vision for India.