The story so far: In a major milestone for his dream project, the Gujarat International Finance Tec-City (GIFT), Prime Minister Narendra Modi on July 29 launched the India International Bullion Exchange (IIBX) – the nation’s first such exchange. The Exchange will be constructed in the heart of GIFT city – an international financial services hub conceptualised by Mr. Modi in 2008.
Highlighting India’s first ‘IT services hub’ — the Gujarat International Finance Tec-City (GIFT) city — Mr. Modi said that with the launch of the International Financial Services Centres Authority (IFSCA), India had joined the league of global financial centres like the United States, the United Kingdom and Singapore.
Stating that IFSCA will enable innovation in the financial services sector, he said , “Today, India alone has a 40 per cent share in real-time digital payments all over the world”. He also said that the various measures taken by his government on Foreign Direct Investment (FDI) policy had resulted in India receiving its highest-ever FDI inflow of ₹6,31,050 crore in the financial year 2021-22.
Recently, on August 23, Chartered Speed Ltd. launched a fleet of four electric buses and 20 e-bikes to aid commuters to GIFT City. The company has plans to expand the fleet to 50 electric buses in the coming 12 to 18 months.
What is GIFT city?
In 2008, the then-Gujarat Chief Minister Mr. Modi first announced that the state government would build a ‘Nano city’ and the Gujarat International Finance Tec-City (GIFT) at Gandhinagar. Addressing the ‘Invest Gujarat’ summit organised by Assocham, Mr. Modi said that the land between Ahmedabad and Gandhinagar would be developed as a Central Business District (CBD) with office spaces, residential apartments, schools, hospitals, hotels, retail and other recreational facilities.
Also read: A GIFT, to be delivered
After a feasibility study was conducted by consulting firm McKinsey and Co, GIFT was launched as a joint venture between the state-run Gujarat Urban Development Co. Ltd and Infrastructure Leasing and Financial Services Ltd (IL&FS), with an initial outlay of Rs 78,000 crores. The city is planned on 886 acres of land with 62 million sq. ft. of built-up area with 67 per cent commercial (42 million sq. ft), 22 per cent residential (14 million sq. ft) and 11 per cent social space (6 million sq. ft).
Helmed by Mr. Ramakant Jha in 2009, the project was initially stalled due to the 2008 U.S economic recession. However, it picked up pace by 2011 when the State government gave 673 acres across Ratanpur, Firozpur, Valad and Lavarpur at Rs. 1. Headed currently by Mr. Tapan Ray, IAS (Retd.) as Managing Director & CEO, the city is 12 km from Ahmedabad’s Sardar Vallabhbhai Patel International Airport and 8 km from Gandhinagar on thebanks of the Sabarmati.
Shift in focus from BKC
With Mr. Modi’s elevation to Prime Minister in 2014, GIFT turned from a real-estate project into India’s first smart city. While presenting the 2015-16 Union Budget, the then-Finance Minister Arun Jaitley shifted the Centre’s focus from Mumbai to GIFT as a potential global financial centre like Singapore or Dubai.
Previously, the Congress-led UPA government focused on developing Mumbai’s Bandra-Kurla Complex as a financial hub. In 2007, a government-appointed committee led by former World Bank official Percy Mistry recommended transforming Mumbai along the lines of New York, London and Singapore with BKC at its centre. Since then, Maharashtra government-run Metropolitan Region Development Authority (MMRDA) has developed and promoted BKC as a destination for global companies to house their Indian branches. However, with the Modi government’s shift in focus to developing GIFT and Mumbai’s geographical constraints, BKC has encountered issues in its expansion.
Tax incentives in GIFT-IFSC
To attract foreign and domestic investment in GIFT, the city’s international financial services centre (IFSC) was declared a multi-service Special Economic Zone (SEZ) in 2015 and the Union Budget 2016-17 provided it with a competitive tax regime. Here are the tax benefits for companies falling under IFSC:
- Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) not applicable to companies in IFSC opting for new tax regime.
- Tax holiday for capital gains for aircraft leasing companies, tax exemption for aircraft lease rentals
- No GST on services received by these companies, provided to IFSC SEZ units or offshore clients
- State subsidies such as 100 per cent reimbursement of stamp duty and registration fee, 100 per cent reimbursement of electricity duty and Rs. 1 subsidy on power tariff for five years, 100 per cent reimbursement of employer’s provident fund contribution, and lease rental subsidy for every 50 sq ft per employee
- National/foreign exchanges set up under IFSC have total tax exemption from Security Transaction Tax (STT), Commodity Transaction Tax (CTT), Dividend Distribution Tax (DDT), Long Term Capital Gain (LTCG), Short Term Capital Gain (STCG).
What is in the city?
The city mainly comprises of banks, capital market entities, insurance companies and captive manufacturing units. As of date, there are 142 SEZ units which are operational and international exchanges dealing with an average turnover of $4 billion daily. Banking businesses in IFSC amount to $ 28 billion as of 2020 and iInsurance businesses upto $ 30 billion.
With over 200 companies setting shop in GIFT, key occupants in the SEZ area are – Bombay Stock Exchange (BSE) Brokers Forum and the National Stock Exchange (NSE); international banks like YES bank, Federal Bank, State Bank of India, Standard Chartered; and insurance companies like Edelweiss, New India Assurance, and Life Insurance Corporation of India (LIC).
GIFT also has two of the tallest commercial buildings in Gujarat – GIFT One and GIFT Two, other office buildings of the Gujarat Industrial Development Corporation, Prestige Group, and the Hiranandani Group. In the non-IFSC area, key occupants include Tata Consultancy Services (TCS), Oracle, HDFC Bank, Bank of Baroda and the National Insurance Company. There are also several residential complexes and social amenities like schools, petrol pumps, hospitals, business clubs, and hotels within GIFT.
Moreover, it also has a waste water recycling plant, optical fibre communication ring, an Automated Waste Collection System, a dedicated power station, a city-level cooling system, a command centre and a Tier-IV data centre – key aspects of a ‘smart city’.
Centre’s budget push & IIBX’s significance
Presenting the Union Budget 2022-23, Finance Minister Nirmala Sitharaman announced the setting up of an International Arbitration Centre in GIFT, services for global capital to promote ‘green’ finance at IFSC and allowing international universities to set up centres offering courses in financial management, fintech and STEM free from domestic regulations.
Read also: GIFT City gets a Budget bonus
While there have been investor concerns about GIFT due to the slow pace in easing restrictions, the Indian rupee’s free fall, lag in insolvency proceedings, the launch of the IIBX and NSE IFSC-SGX Connect and the promise of an international arbitration centre have spurred renewed inflow of investment in GIFT.
With the launch of the IIBX, the government hopes that India, which is one of the world’s largest gold importers, will now be able to set the price standard internationally via the exchange. The IIBX also aims for standardization of gold prices and the elimination of market inefficiencies, thus enabling better organization to India’s bullion market. Currently, the Reserve Bank of India has only allowed some banks and and nominated agencies to import gold and sell it to dealers and jewellers. IIBX will allow qualified jewelers to directly import the yellow metal as per customer demand.