GIFT City – Meet India's Most Bullish Smart City

Sidharrth Shankar

The National Stock Exchange (NSE), the Mumbai Stock Exchange, and the Delhi Stock Exchange have undoubtedly been the fulcrum ofIndia’ seconomic undercurrents. However, the country had no state-of-the-art infrastructure that could develop as a global financial centre comparable with the international financial hubs such as those in Hongkong, London, and Singapore.

 

What started as a concept in 2007 acquired a veneer of infrastructure success by2012. This continued effort inched towards successful traction until 2017 when existing business regulations started trickling in. Since then, the Gujarat International Finance Tec (GIFT) City has been the cynosure of all  stake holders worldwide. The opening up of the NSE International Financial Services Centre (IFSC)has been a signature stroke in terms of confidence for businesses nationwide, allowing investments in stocks listed in the US exchanges.

 

Further, several decisive steps were taken earlier, beginning with the registration of aircraft leasing firms in February 2021. This was followed by reversal of the requirement of PAN in a specific category of Alternative Investment Funds around May 2021. The appointment of Injeti Srinivas as the Chairman of IFSC Authority was yet another noteworthy booster for India Inc. The authority has recently urged the RBI to consider aircraft leasing as a financial service that allows banks to get involved.

Furthermore, the NSE agreed to establish a data connection with the Singapore Exchange (SGX), allowing investors in Singapore real-time access to data that had been blocked since 2018. This opened a floodgate of Nifty trades on the NSE IFSC that swamped the SGZ.

 

A natural fallout is that the count of entities and their establishments in the city is only increasing by the day, whether it is banks, financial advisory houses, insurance-related businesses, or any other form of business that can be a financial service.

 

More for The Silver Generation

It is projected that the country will have higher numbers in the silver generation (aged 60+) by 2040 than those below 20 years of age. For such a scenario, a special panel has been devised for planning and deliberation over creating the GIFT City as a longevity hub.

 

What's Dampening the Soil?

While it may be a proven test that new trading jurisdictions provide benefits to trading firms to ensure good liquidation of stock, it is expected to create an ultimate situation where the retail investors take over the race. Surprisingly, the current trading firms in the GIFT city are mostly proprietary in nature, i.e., trading for their own profits rather than using investors' funds to generate worthwhile returns for them!

 

To add to the legal and dispute resolution delays that India Inc. faces, inconsistent tax laws and the fact that the Indian rupee is not yet fully convertible are some of the bugbears that trouble investors. This creates approval hassles when it comes to amounts being traded in large quantum, opening the door to authorities for remedial action such as stemming volatility.

 

Yet another irritant is the Insolvency cloud darkening the India Inc sky. Domestic bankruptcy and insolvency and even cross-border insolvency aspects are a grey area where investors seek clarity. They would appreciate decision-making in respect of 'UNCITRAL Model Law on Cross Border Insolvency,' which, according to the United Nations, can bring harmony to global insolvency-related matters.

 

The Dubai International Financial Centre and the Abu Dhabi Global Market are two major financial hubs that do not have their own laws, but adoption of the UNCITRAL Model Law has given them an edge over all other centres.

 

Soaring Securitization Senses

The Government of India has been constantly aspiring to increase participation by Foreign Portfolio Investors (FPIs) in securitization transactions. However, it has had to contend with challenges varying from PAN and ITR disclosures triggering data privacy concerns, to higher taxation levels and absence of securitization-focused funds. Such challenges were met with a reprieve  when the Government recently announced a clutch relaxations.

 

The Government’s relaxations range from direct concessions between offshore investors and asset managers to tax exemptions for non-resident investors. Category III AIFs, based on securitization pools, have been a boon for all. Moreover, these funds could also lower the risks incurred by way of diversification, and there are also sweeteners such as long-term tax-free years for asset managers.

 

Real Estate Roars

The recently-announced special permission provided to GIFT City for dualuse has been a significant catalyst to the real estate boom in geography. The dual-use permission allows developers to offer assets eventoentities not operating in the SEZ. This comes after rigorous grants and reviews from the SEZ Board, Government of Gujarat, and the Board of Approvals. Moreover, this will endow the entire city with a new social muscle, as citizens countrywide would be able to experience the well-planned zones of the smart city as mere residents.

 

The Viral Effect

Irrespective of the highs and lows the GIFT City has encountered, other states are definitely keen to create such investment magnets in their respective jurisdictions. A recent example is the excellent planning with regard to the land acquisition for the Kochi-Bengaluru industry corridor.

 

Close Call

The welcome ring tone of the GIFT City also has a flip side. First, it is essential to know why aircraft leasing companies have been the preferred parties offered perks in the GIFT City. Is it not questionable to see a Bank of America leasing out massive space while IT ITeS companies– barring a select few such as TCS and Oracle --are yet to look at it from an investment perspective? But then, except for Policy and Regulation, important fundamentals such as Talent, Capital, and Demand, have yet to complete the fabric for a booming fintech hub. Technology grants, job creation subsidies, GST exemptions for Startups, and Funding support are some of the critical missing essentials that can fortify the construction of a much more vibrant GIFT City.

 

The author is a Partner, J Sagar & Associates. The views expressed are personal and not of the firm.