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All you wanted to know about: GIFT

ARVIND JAYARAM | Updated on January 24, 2018

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The Modi government is not just keen to invite manufacturers of mobile phones, electronics and automobiles to locate their operations in India. Financial market players and investors are on its radar too, with the government recently flagging off the Gujarat International Finance Tec-City or GIFT, a business district in Gujarat to be developed on the lines of international financial hubs such as New York, Hong Kong and Singapore.

What is it?

GIFT is planned as a greenfield business district, to be located between Gandhinagar and Ahmedabad, to cater to financial services and IT firms looking to set up India operations. The city is expected to host 8.5 million sq ft of constructed space with cutting edge connectivity and infrastructure with provision for a huge green belt. The city will have demarcated zones for international exchanges, banking and insurance firms, tech companies and others. The idea is to host a financial hub which can replicate the SEZ model, to bring in more financial market transactions to India.

Today, large global investors trading on financial instruments like the Nifty or the rupee often prefer to transact in other centres, due to complex rules, capital controls and uncertainty about taxation. Not only does this lead to the flight of financial jobs, it also means less revenue for the exchequer. It is estimated that nearly half the rupee derivative trades every day take place outside India.

Why is it important?

Unbridled growth of financial services can sometimes deliver nasty jolts to the real economy (like the US credit crisis in 2008). But there is no doubt that vibrant financial markets are critical to a country’s GDP growth. GIFT could provide as many as 5,00,000 direct and indirect jobs and absorb 5.76 million square metres of real estate, creating a mini-boom in and around GIFT city. It is hoped that GIFT can do to Indian growth rates what Hong Kong has done to the mainland Chinese firms. Specific tax and FEMA exemptions will be granted to firms operating in GIFT city to incentivise large global players to set up shop here.

Given its emphasis on technology, zoning and environment-friendly construction, GIFT can also serve as the prototype on which the promised smart cities of the future can be modelled. So far, while there has been a lot of talk about smart cities, their actual contours have been unclear. India has already tried out a similar model with manufacturing. When the first export processing zones were introduced in the country at Kandla (1965) and SEEPZ (Mumbai, 1973), they served as a valuable learning ground. It also helped policymakers get used to the idea of trade openness before these policies were applied on an all-India scale.

Why should I care?

GIFT could have two main benefits for you. For one, it could create high-value jobs in the country by onshoring financial services across different assets — be it stocks, bonds, currencies or commodities. Two, you can heave a sigh of relief that when the government experiments with reforms that can cause major financial upheavals such as implementing the Indian Financial Code, it will not use you as the guinea pig. The reform will first be ‘incubated’ at GIFT.

The bottomline

The ghar wapsi of financial transactions to India will certainly be welcome. But the success of GIFT will hinge on how far the plans for the city get translated into reality.

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Published on March 23, 2015

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