In today’s Finshots, we tell you how the Gujarat International Finance Tec-City or GIFT City for short has convinced businesses to set up shop.

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The Story

A decade ago, everyone had one story to tell about India’s GIFT City. The ₹78,000 crore plan considered a pet project of the country’s incumbent Prime Minister looked like it was on the verge of failure. The posh buildings that the plan visualised were incomplete. Power utilities were missing. And there was no sign of the corporate tenants who were expected to populate it.

Cut to 2024, things have changed.

GIFT City is bubbling with construction activity. Swanky residential apartments, a school and even a hospital are being built at a frenzied pace. And its high-rise towers house about 400 offices and employ 26,000 people. Startups and established companies are looking to move their base, business or investments here.

So what changed, you ask?

Well, let’s take it from the top.

In 2007, when Narendra Modi was the Chief Minister of Gujarat, he announced an ambitious plan. He wanted to set up an international financial centre along the banks of river Sabarmati in Gandhinagar. Apparently, he was inspired by Shanghai and wanted a smart city along those lines — one that would rival global financial centres in London, New York and Singapore. So he brought aboard the same folks who’re credited with planning modern-day Shanghai and asked them to chalk out a blueprint for this new city.

Sounds like it would’ve been a recipe for success, no?

Well, not quite. Because planning alone wouldn’t cut it. The execution had to be robust too. And therein lay the problem.

Because even the most basic construction activities at GIFT City were facing issues. For instance, the aviation ministry was hesitant to hand out permissions for constructing tall buildings that would dot the city’s skyline. And the National Highways Authority of India wasn’t in a hurry to even give the green light to lay power cables. Everything came to a standstill.

In the meantime, Mumbai was already India’s financial capital. And the central government had already made plans to develop the Bandra Kurla Complex (BKC) area into a fierce rival to Singapore, London, and New York. So why would anyone bother with another city in some corner of Gujarat?

It looked like Narendra Modi’s pet project wouldn’t see the light of day.

But in 2014, everything began to fall into place for the success of GIFT City.

Why, you ask?

Well, the BJP-led government came to power in the centre. Chief Minister Modi became Prime Minister Modi. And you can imagine that gave him the power to push through his plans for Gandhinagar.

The city had got the tag of a SEZ (Special Economic Zone). This meant that the economic laws would be much more liberal for companies here than in any other part of the country. And the incentives came thick and fast after that — there was a 10-year tax holiday for companies that set up shop here, no GST would be levied on services provided to and received from GIFT City-registered units, and a whole host of other stuff.

Heck, even the failure of its joint-venture development partner didn’t stop the project in its tracks.

Oh yeah, there’s something we didn’t tell you earlier. GIFT City was actually a joint venture between the Gujarat state government and IL&FS (Infrastructure Leasing and Financial Services Ltd.), a construction and financial services company. But the latter ran into trouble in 2018. It accumulated close to ₹1 lakh crores in debt and couldn’t pay its borrowers back. So the projects it had in its kitty stalled. And GIFT City was one of them.

But the government soon jumped in and took over the stake IL&FS had in GIFT City.

Quite crazy, huh? There was no stopping this ambitious plan.

And the game changer seems to have come in 2020. The government decided to create a single unified regulator in the zone — it was called the International Financial Services Centres Authority (IFSCA) and it took on the role of the existing four domestic regulators in the area. It would cut down on the red tape and make the lives of businesses easier.

Why do we say this was a game-changer?

Well, remember the Silicon Valley Bank Crisis last year?

It was mayhem all around because a lot of startups banked with them. Even Indian startups. But when it looked like it was on the verge of collapse, these startups rushed to withdraw their monies. And guess where over $200 million worth of startup funds landed up?

To banks in GIFT City!

And it’s just been one thing after another since then.

We launched one of the only 3 dedicated bullion exchanges in the world in GIFT City to centralise the import market of gold. And in a bid to woo more startups, the government even launched an exchange where Indian startups could quickly list their shares to raise money from foreign investors. Before this, they’d have to go via the GDR (Global Depositary Receipt) route. They’d have to issue shares to a local bank for safekeeping which would in turn connect with a foreign bank and issue something called depositary receipts. These receipts would get listed on foreign stock exchanges and derive their value from the company’s Indian shares. It’s actually a cumbersome process. But now, they could simply list themselves on the exchange within GIFT City and get all the benefits.

So yeah, things seem to be going quite well for GIFT City right now. And who knows, we might indeed have a financial services centre to rival London, New York, and Singapore pretty soon!

What do you think?

Until then…

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Correction: The story has been updated to reflect that the Silicon Valley Bank crisis occurred in 2023.

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