It took more than a decade for GIFT City in Gujarat, India's only international financial hub, to finally materialise with the help of better policies and regulatory clarity. GIFT City's inception in 2007 saw uncertainties until 2014 when Prime Minister Narendra Modi came to power at the Centre. Approval as India's first operational IFSC in 2015 marked a turning point, positioning it as a significant contributor to India's economic growth.
After the establishment of the International Financial Services Centres Authority (IFSCA) in 2020 and the introduction of specific regulations for managing funds in 2022, key businesses in GIFT City have experienced significant growth each year. The IFSCA is a regulatory body that oversees and regulates financial activities within GIFT City.
Businesses like managing funds, stock markets, international banking and leasing aircraft have all expanded notably in GIFT IFSC. More than 200 companies have established their presence in GIFT City, including 19 banking units, 25 insurance companies and numerous brokerages and financial service providers. Key players such as the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and international banks like Standard Chartered, State Bank of India, Dual and JP Morgan have established their offices and operations within GIFT City.
In 2023, when Silicon Valley Bank collapsed, GIFT City came to the limelight and approximately $200 million moved there in a span of few days. This event positioned GIFT IFSC as an alternative on the global stage for international banking.
Trading of SGX Nifty futures at GIFT City via the NSE IFSC-SGX Connect, known as GIFT NIFTY, is set for substantial growth. The daily trading volume for SGX Nifty futures contracts stands at approximately $1.8 billion, significantly surpassing the previous volume of $150 million on NSE's international exchange within GIFT City. It has attracted more than 80 fund managers with total investments of $2.9 billion across India and overseas.
According to EY, in GIFT City, Alternative Investment Funds (AIFs) have made total investments of approximately $3 billion as of 31 March 2024, with commitments raised amounting to around $8.4 billion. On the other hand, banks have deployed funds totaling $60 billion within GIFT City.
According to Aarti Harbhajanka, Co-Founder & Managing Director at Primus Partners, GIFT City has attracted a significant number of residents, with over 5,000 residential units already occupied, housing a population of around 15,000-20,000 people. The residential population is expected to grow to around 1 lakh by 2025 as more companies and professionals relocate to the smart city.
Challenges ahead
Despite remarkable progress, GIFT City faces challenges in talent retention, infrastructure development, connectivity, cost competitiveness and global visibility.
"First, attracting and keeping top talent is tough with competition from cities like Mumbai, Singapore, and Dubai. Then, there's a need to build schools, hospitals, and fun places for the growing population. Improving connectivity with other cities and within the city itself is crucial too. People worry about the high cost of living and doing business there compared to other Indian cities. Lastly, GIFT City needs more recognition as a global financial hub both in India and worldwide," said Harbhajanka of Primus Partners.
According to Lokesh Shah, partner with IndusLaw, units in GIFT City currently have to obtain approvals separately from both the Special Economic Zone (SEZ) authority and the International Financial Services Centres Authority (IFSCA). This dual approval process can lead to delays and duplication of efforts for businesses.
"The government should consider introducing a single approval mechanism to minimise time-lag and eliminate duplication in process. On an overall basis, I believe GIFT City is gradually becoming a gateway for global capital and financial services for the economy, though certain issues on infrastructure and talent crunch will need to be addressed quickly," Shah added.
However despite these challenges, India’s only international financial centre is shaping up well.
"Since the formation of the IFSCA authority under the IFSCA Act, we have seen some real traction around GIFT city. The authority is also fairly proactive and keen to attract businesses in setting up a presence in GIFT,” says Keyur Shah, partner with EY India.
He says like in the case of any financial centre it would take time for it to reach its full potential but adds that a lot more conversations are happening around GIFT City whether it is for funds, banks, broker dealers or even foreign universities or aircraft operators.
