Why GIFT city needs to build an Ecosystem?

In this edition let us discuss the development of Gujarat International Finance Tec-City, popularly known by the acronym – GIFT City.

GIFT City, a special economic zone (SEZ) between Ahmedabad & Gandhinagar, announced in 2007, by the then chief minister Mr Modi, aims to become an International Financial Services Centre (IFSC) with the likes of Dubai, Singapore or Hongkong.

GIFT City construction started in 2012 but it gained significant attention after the International Financial Services Centres Authority (IFSCA) took charge in Oct 2020, replacing four domestic regulators. Since then, GIFT-registered firms have risen from 129 to 450 in February 2023, with more than $240 million in investments committed.

Despite numerous tax incentives & government subsidies – 100% income tax exemption for 10 consecutive years out of 15 years, No GST on services, No Security Transaction Tax (STT), Long Term Capital Gain (LTCG), Short Term Capital Gain (STCG), State Subsidies on Lease rental, PF contribution, electricity charges – the businesses are yet to pick GIFT-city as their preferred location.

This brings us to a set of contributing reasons for a region/city to emerge as a world class financial hub.

First, The banking sector forms the core of any financial centre. Other financial services like insurance and capital markets grow around it. The banks may set up a new shop in an IFSC but if their lending & growth policies are geared in old ways, it is likely to limit growth.

Second, it has been reported that setting up an operating office in the GIFT City has been cost heavy due to high rentals, fees and charges.

Third and probably the most critical, GIFT City hasn’t been able to attract talented professionals as it was expected. A city doesn’t emerge by forced design. It would be difficult for career oriented top finance professionals, primarily based out of our financial capital – Mumbai to shift their base to GIFT City, Ahmedabad.

Historical and socio-cultural factors, playing out over decades (or even centuries) lead to emergence of cities which are economic and financial powerhouse such as Mumbai, New York or Hongkong.

In light of the above factors, it would be beneficial for the government to incentivise talent to move to the new emerging financial hub. This would require the cost of residential rent or properties in the GIFT City to not become unaffordable, easy access to world class public utilities, clean environment and best-in-class infrastructure and above all build an ecosystem for top professionals to thrive there. After incentives to business entities to set up their units, it follows that now individuals need to be incentivized.

The gift of the GIFT City remains to be unwrapped. Let us wait and watch how it unfolds.

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