India zone to draw foreign investments

The project sets up the country's first international financial services center

India is presenting a special "gift" to the world.

The Gujarat International Finance Tec-City, or GIFT City, project-a special economic zone in India's western state of Gujarat-is an endeavor by the country to join a connected global marketplace.

Scheduled for completion by 2021, GIFT City is designed to attract international investors and the trading community and to do business in foreign currencies, of which there is still a shortage in this fast-growing economy.

Mumbai, known as the country's financial capital for decades, has seen most of the transactions conducted with the Indian rupee. The GIFT City project sets up an international financial services center, the first of its kind in the country, so investors can conduct transactions in foreign currencies according to regulations enacted in 2015.

In this way, the concept is similar to what the Hong Kong Special Administrative Region does for China as a financial window, said Dipesh Shah, head of the GIFT International Financial Services Centre, known as the GIFT IFSC.

So far it has attracted 12 leading banks, including State Bank of India, 17 insurance companies, many capital market players, and law and arbitration firms. The cumulative business transactions of the banks in GIFT City have surpassed $16 billion, Shah said.

"GIFT IFSC provides a huge competitive advantage in terms of tax structure and supportive regulatory framework, which is comparable with other global financial centers," he said, adding that other advantages include the waiver of taxes such as the security transaction, commodity transaction, dividend distribution and capital gains taxes, as well as the goods and services tax.

"IFSC entities are also eligible for a graded tax holiday for the first 10 years, apart from various other tax benefits available on (capital expenditure and) stamp duty," Shah said.

"Our vision is to create a hub where foreign investors can transact Indian securities with minimal tax and government interference, and also for domestic companies to raise funding in foreign currencies," he said.

The GIFT IFSC was ranked as the third most promising financial services center globally, in a semiannual research report, published in September 2018, by the China Development Institute in Shenzhen and Z/Yen Partners in London.

A few foreign banks have applied for licenses to operate, according to an official who requested anonymity. The official said the Industrial and Commercial Bank of China has made an "evaluation of the opportunities" that the GIFT IFSC offers, and the Shanghai Gold Exchange has shown interest in connecting with its exchanges.

"GIFT IFSC will go a long way in reducing India's current account deficit in financial services," Shah said.

"The huge hinterland demand for international financial services here in this country has prompted the Indian government to tap this demand and try and create a large number of jobs through GIFT IFSC," he said.

The GIFT IFSC has established India INX, an international stock exchange.

Venkataramani Balasubramaniam, managing director and CEO of India INX, a wholly owned subsidiary of the Bombay Stock Exchange, said the international exchange will allow overseas investors to trade Indian securities in foreign currency. At the same time, Indian investors can access global markets, he added.

"(India INX) offers a competitive regulatory framework, attractive tax structure and easy access to markets," Balasubramaniam said, adding that a single authority for regulatory approvals will be established, making it significantly easier to do business.

"We can explore the potential of launching renminbi-denominated products across multi-asset classes that can attract Chinese investors to set up at the GIFT IFSC. We look forward to collaborating with exchanges based in China for cross-listing," he said.

He said more international exchanges, such as the London Metal Exchange, will be established later.

Ajay Pandey, GIFT City's managing director and group CEO, said, "For China, GIFT IFSC is a great opportunity to operate (within a) favorable regulatory and competitive tax regime. India's economy is going from strength to strength. For an economy of such a huge scale, a global center is extremely logical."

GIFT City has also established a link with the Dubai Multi Commodities Centre, a free-trade zone in the United Arab Emirates.

According to Siddhartha Das, a senior banker with a Dubai-based bank, the link with Dubai will allow GIFT City to tap the networks of the Dubai center and enhance business and trade footprints in the Middle East and North Africa region.

Arunava Das is a freelance journalist based in Kolkata, India.