One key agenda behind all of Finance Minister Nirmala Sitharaman’s Budget speeches (and former FM Arun Jaitley’s speeches) has been the focus on building GIFT City (Gujarat International Finance Tec-City) as an International Financial Services Centre (IFSC). Even in the Budget Speech of 2023-24, FM Sitharaman has proposed reforms/developments to promote GIFT City as an IFSC. Before discussing the current proposals, let us review the GIFT City proposals suggested in earlier speeches.
Past GIFT Proposals
In 2018-19, then Finance Minister Arun Jaitley mentioned that the government will “establish a unified authority for regulating all financial services in IFSCs in India”. The Government followed the announcement by instituting International Financial Services Centre Authority (IFSCA) at Gandhinagar in 2020.
In 2019-20, Sitharaman, newly appointed as FM, provided direct tax incentives to investors and entities establishing units in the IFSC. In 2020-21, the FM proposed establishing an international bullion exchange for the enabling of trading precious metals in the GIFT City IFSC. The exchange was established recently.
In 2021-22, the FM flagged the development of a world class Fin-Tech hub at GIFT City and also provided tax incentives to aircraft leasing companies, foreign funds relocating to the IFSC, and to investment divisions of foreign banks located in IFSC.
In 2022-23, the FM announced the establishing of world class foreign universities to build human capital in the region. The government also proposed establishing an international arbitration centre and that services for raising funds for sustainable and climate finance would be enabled at GIFT City.
Budget 2023-24
Coming to Budget 2023-24, the FM has announced that the government will streamline regulations pertaining to IFSCs. Currently, SEZ Act 2005 (Special Economic Zones) deals with laws related to establishing IFSC and arbitrating cases in IFSCs. The Government has proposed delegating these regulations and arbitration services from SEZ Act to the IFSCA to avoid dual regulations.
The government has also announced a single window Income Tax system for registration and approval from multiple financial regulators such as IFSCA, SEZ authorities, GSTN, RBI, SEBI and IRDAI. The government will also establish a subsidiary of EXIM Bank in the IFSC for trade refinancing, recognise offshore derivative instruments as valid contracts, and permit IFSC banking units of foreign banks to provide financing for acquiring foreign companies. The government will also facilitate data embassies in GIFT City for countries looking for digital continuity solutions.
Apart from taking measures in the Budget, the government has also reviewed the developments at GIFT City in its annual flagship Economic Survey for 2022-23. The Survey says that establishing GIFT City IFSC is the most important initiative taken by the government in the capital markets space.
What Economic Survey Said
It has highlighted various projects/agreements signed by the various institutions with the global finance community to develop GIFT City IFSC. IFSCA has signed an agreement with the Monetary Authority of Singapore to promote FinTech, National Stock Exchange with Singapore Exchange to promote derivative trading, and India INX with Luxembourg Stock Exchange to enhance the visibility of listed Indian securities towards international investors and also promote green finance.
Given the brief history of Budget speeches and discussion in the Economic Survey on GIFT City, we can clearly say that the government has constantly provided political and economic support to build GIFT City as an IFSC. The government has established IFSCA as a central authority to develop regulations for IFSCs, tweaking existing laws to give powers to IFSCA proposing to establish universities to build human capital, giving tax incentives to establish businesses in the region and setting agreements with key international players.
Gift City’s Take-off
However, the proof of the pudding lies in eating it. How do the government’s policy initiatives translate into action in the financial marketplace? IFSCA Annual Report for 2021-22 provides us with some data points. The volume of business by the fifteen international banking units in GIFT City has surged from $21 billion in 2020-21 to $107 billion in 2021-22.
In terms of capital markets, NSE IFSC has 49 trading members and India INX has 53 members. The volume of derivative contracts has increased from $45.9 billion to $80 billion in the same period. Around 17 companies raised debt worth $18 billion in 2021-22. The broad trends suggest that volumes have picked up significantly in GIFT City in the last one year alone.
As IFSCA was established in 2020, the major gains are perhaps due to the regulator. The next step for the IFSCA should be to build a data centre and regularly publish and share financial data. This will help in doing a more robust analysis of the various financial activities at the Gift City IFSC, identify the gaps, and then address these gaps.
Amol Agrawal is faculty at Ahmedabad University. Views are personal and do not represent the stand of this publication.
