GIFT City’s Rising Profile: Government of India Emphasizes Key Progress Ahead of Interim Budget 2024
The Ministry of Finance has provided an update on the development of GIFT City, short for Gujarat International Finance-Tech, ahead of the announcement of the interim budget 2024. It states that the GIFT-IFSC has successfully harnessed a business ecosystem that is constantly growing and drawing in businesses, technology, and financial market players from all over the world.
The business-centric destination is witnessing considerable investments, along with the Gujarat state government’s active engagement with over 1,000 companies through a series of six international and eight domestic roadshows during the Vibrant Gujarat Global Summit (VGGS).
What is GIFT City and GIFT-IFSC?
GIFT City is a business district located near Gandhinagar, state capital of Gujarat. Spread across 886 acres, it stands as India’s inaugural operational smart city and international financial services center (IFSC). The GIFT City is specifically designed with cutting-edge infrastructure to provide a wide array of international financial services to foreign investors and Indian businesses. The designated location can accommodate both domestic and international banks, enabling them to establish units within its confines to deliver global banking services within India.
GIFT City hosts a combination of commercial and residential spaces. Within the business segment of GIFT City, key services industries include offshore banking, asset management, and insurance. The IFSC is fast emerging as the preferred destination for a growing number of businesses involved in the financial services sector, IT-enabled services, business process outsourcing, GCCs, among others.
The GIFT City IFSC acts as an exclusive space for clients outside the purview of the domestic economy. It is empowered to handle international financial product and service flows under liberalized capital and tax regulations.
Globally, Singapore, New York, and London are premier financial hubs. Shanghai and Dubai, two relatively new Asian IFSCs, have become heavyweights in their own right in recent years. India’s GIFT City IFSC is modeled on these financial hubs and the government aims for it to soon be able to compete with international financial centers.
Key developments at GIFT IFSC
In May 2023, the Exim Bank announced it received approvals from both the GIFT Special Economic Zone and the International Financial Services Centre Authority (IFSCA) for setting up Exim Bank’s subsidiary in GIFT City. The Ministry of Finance granted a Letter of Allotment (LOA) dated July 11, 2023, to Exim Bank, and as of August 2023, operations on the allotment of office space have commenced.
At the latest edition of the Vibrant Gujarat Global Summit, held between January 10-12, 2024, the state government formalized several Memoranda of Understanding (MoUs) with prominent Australian firms, intending to forge strategic partnerships in the digital technology sector and establish finance sector entities within Gujarat’s GIFT IFSC.
India’s Prime Minister, Narendra Modi, has also reaffirmed India’s position as one of the fastest-growing fintech markets globally, emphasizing that the country’s fintech strength aligns with the vision of GIFT IFSC. Modi envisions GIFT City as having the potential to serve as the gateway to the global fintech realm while operating as a fintech laboratory in India.
On January 24, 2024, Union Minister for Finance Nirmala Sitharaman announced the enabling of direct listing of Indian companies at GIFT-IFSC exchanges in the first phase.
“The international stock exchanges at GIFT-IFSC under the regulatory supervision of IFSCA, namely, India International Exchange and NSE International Exchange, have been, currently, prescribed as permitted stock exchanges under the Rules and the Scheme.”
The framework incorporates a combined regulatory framework that will allow unlisted public Indian companies to list their shares on international exchanges. The Securities Exchange Board of India, or SEBI, is in the process of issuing operational guidelines for listed public Indian companies.
Through the Companies (Amendment) Act, 2020, which came into force on October 30, 2023, provisions were included in the Companies Act, 2013, allowing the direct listing of securities of public companies incorporated in India on permitted stock exchanges in permissible foreign jurisdictions. This move is expected to reshape the Indian capital market, providing an alternative avenue for Indian companies, especially start-ups and those in the startup and technology sectors, to access global capital. Market experts anticipate that it may lead to better valuations of Indian companies, aligning with global standards, boosting foreign investment flows, unlocking growth opportunities, and broadening the investor base.
Apart from enabling public Indian companies to access both domestic and international markets for raising capital in INR and foreign currency, respectively, the initiative is poised to enhance the capital market ecosystem at GIFT IFSC. It will introduce new investment opportunities, diversify financial products, and bolster liquidity.
Promises made under Union Budget FY 2023-24
On February 1, 2023, Sitharaman unveiled a series of strategic initiatives aimed at bolstering business activities at the GIFT-IFSC under the Union Budget FY 2023-24:
- Delegating powers under the SEZ Act to IFSCA to avoid dual regulation
- Setting up a single window IT system for registration and approval from IFSCA, SEZ authorities, GSTN, RBI, SEBI and IRDAI
- Permitting acquisition financing by IFSC Banking Units of foreign banks
- Establishing a subsidiary of EXIM Bank for trade re-financing
- Amending IFSCA Act for statutory provisions for arbitration ancillary services, and avoiding dual regulation under SEZ Act
- Recognizing offshore derivative instruments as valid contracts
In her address to Parliament, Sitharaman highlighted the recognition of offshore derivative instruments as valid contracts under the proposed measures. Moreover, in a forward-looking initiative, she announced the facilitation of Data Embassies in GIFT IFSC for countries seeking digital continuity solutions. This decision will position GIFT IFSC as an attractive destination for nations exploring secure data management options.
Will GIFT-IFSC receive additional support in the 2024 interim budget?
While GIFT-IFSC has seen a series of significant announcements within a short timeframe, moving forward, there will be a pressing need for more collaborative efforts to propel initiatives in IFSC-GIFT City and surmount existing challenges. Beginning in 2024, the financial services sector in India calls for regulatory and tax adjustments to spur technological innovation and strengthen defenses against fraudulent activities.
Prioritizing IFSC-GIFT City as a global financial services hub and addressing tax structures and regulatory frameworks will be crucial considerations for the future. A unified approach to these measures will contribute to a resilient and progressive financial ecosystem.
It remains to be seen whether these will be tackled by the government during the interim budget, or reserved for after the elections.
What lies ahead for GIFT IFSC in 2024-25?
In November 2023, K Rajaraman, Chairman of the IFSCA, outlined to Bloomberg the envisioned next phase for GIFT. The strategy involves transitioning the IFSC into a reinsurance hub. Moreover, the IFSCA aims to streamline services like bookkeeping, accounting, taxation, and financial crime compliance within the international financial center.
Focus on pensions sector and saving in foreign currency
With a spotlight on the pensions sector, Rajaraman underscored the substantial number of individuals in the Indian diaspora employed abroad who prefer saving in dollars. Recognizing this opportunity, a dedicated team is actively pursuing the initiative. After their reporting, the IFSCA plans to introduce a set of pension regulations enabling individuals to manage their pension savings within the GIFT City IFSC. This initiative would provide a convenient and viable option for those interested in saving in foreign currency.
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