At first glance, Wong’s assessment seems a bit harsh. Over the past decade, GIFT City has been transformed from a barren landscape into an impressive enclave with 14 tall, magnificent buildings. The project is a business district with two areas: GIFT City and GIFT IFSC. IFSC is legally a foreign jurisdiction that enjoys tax exemption and facilitates smooth flow of finance, financial products and services across borders. This is the first such center in India.
One-fourth of GIFT City has been earmarked for IFSC. The idea is that people work in the center and live in the domestic jurisdiction GIFT City. So, the 886-acre property will have office space, residential apartments, schools, a hospital, hotels, clubs and other facilities.
But Wong was not commenting on the quality of infrastructure as much as the absence of life after dark. And that is because GIFT City is still a lot of work in progress even though it has been in operation for 15 years. While many financial services, law and consulting firms have established a presence within it, they have only done so with a token office. Most of his operations are still being done from Mumbai, so he has little presence on the ground in Gujarat.
For example, most of the employees of NSE IFSC, a subsidiary of NSE GIFT City, are still based in Mumbai, while its partner exchange SGX has taken up a room in GIFT City to mark its presence. Then there are over 20 alternative investment funds, including True Beacon Global, Avendus Capital, Kedara Capital, Vivriti Capital and ASK Realty Fund, which have been licensed by the IFSC regulator, but most have not yet commenced operations.
playing catch up
To be fair, India’s first IFSC unit only became operational in April 2015, and was slow going till 2020. Given that their international finance centers were established long ago, Singapore, Hong Kong (1993) and Dubai (2004) are far ahead. Gift City.
A quick look at the numbers shows just how far Gift City has to go. Hong Kong IFC has $3 trillion in banking assets; Singapore has 672 listed companies and banking assets of $2 trillion, and IFC in Dubai has banking assets of $189 billion with 3,644 active companies and a workforce of 30,000.
There are no primary listed companies as of now in GIFT City IFSC and only 300 registered entities. Its banking assets are $30.7 billion, while investments (both committed and completed) total approximately $1.5 billion ( 11,000 crore) by 2021-22.
GIFT City’s two exchanges, NSE IFSC and BSE’s subsidiary India International Exchange (INX), have modest trading volumes, and both are in the red. The loss of NSE IFSC for the year ended March 2021 (latest available figure) was 1.03 crores. Since its founding in 2017, losses have accumulated 8.5 crores. INX had losses till December 2021 7.6 crores, almost three times its loss 2.24 crore in December 2020
Trading volumes on these exchanges will increase when SGX investors start trading in Nifty companies through NSE IFSC-SGX Connect, a technology framework that will allow SGX clients to trade in Indian securities through NSE IFSC. ‘Connect’ was supposed to launch on April 1, but has been extended to July due to pending regulatory approvals and technology vendor, TCS, committing to a July deadline.
That being said, GIFT City has grown at lightning speed over the years and if the momentum continues, it will be able to hold its own in a few years.
Why IFSC?
In January 2017, Prime Minister Narendra Modi said that he wanted India to become the denominator of Indian securities and commodities within a decade. Currently, Indian securities and commodities such as gold and oil carry price signals from foreign exchanges. The Prime Minister’s statement signals this to change – meaning, price discovery should be through a financial center located in India.
IFSC also aims to transfer financial sector activity related to Indian securities and commodities from foreign exchanges. Therefore, if investors in Singapore, Dubai or Hong Kong are trading in Indian securities and commodities from those regions, shifting those operations to GIFT City will prove to be equally tax efficient.
A vibrant IFSC will ensure that trading in Indian stocks like Reliance Industries Ltd takes place only from a center located in India. Currently, trading also takes place through the Singapore Stock Exchange.
Yash Bansal, Partner, Trigal says, “The fund manager is looking to set up their feeder fund (a subsidiary of the main fund) in GIFT City to pool international capital, which was previously established in other offshore jurisdictions such as Mauritius and Singapore. it was done.” ,
The government is doing its bit to attract foreign funds. For example, the 2021 budget removed the cost of tax if a fund decided to migrate from Mauritius to GIFT IFSC. But so far no such migration has taken place; Most of the funds being set up here are new funds.
The aspirations are clear but it will take some time for GIFT City to catch up with the international IFC. For starters, it needs to set up more infrastructure. At present, the IFSC section has only three buildings – Sevi Pragya, Brigade International Financial Centre, and a building developed by Hiranandani. It is hard to imagine that these three buildings would be enough to house the world’s financial services and businesses interested in doing business with India. Premi Pragya has 24 floors, two of which are occupied by the IFSC regulator, while eight have been set aside for Bank of America. IFSCA will eventually have a separate head office but it is not clear when it will be constructed.
IFSC Authority
About 15 years ago, when I first came to GIFT City, it was a barren land. My cab driver looked around and asked me if he should wait for me. Today we are sitting in this smart city, in a state-of-the-art building. “We have come a long way,” says Dipesh Shah, executive director of the International Financial Services Center Authority (IFSCA).
Many people put off the GIFT City project, but Shah earned the nickname ‘Bhishma Pitamah’. Today he has a luxurious office on the second floor of Savi Pragya Bhavan.
A team of officers in IFSCA, led by Injeti Srinivas, senior bureaucrat and chairman of IFSCA, acts as a unified regulator for GIFT City. IFSCA’s mandate is to develop the GIFT City project and reduce regulatory friction for market participants.
IFSCA started functioning in 2020 with a batch of 20 selected civil servants. The authority gets good reviews from everyone in the financial services sector, which is credited with helping businesses navigate the regulatory landscape.
“Given that it offers a friendly and flexible setting with strong regulatory backing for innovative investment structures, IFSC looks like an attractive financial hub for investors globally. We have seen many domestic fund managers setting up their feeders in GIFT City (for example, Bloom and Kedara).”
Srini Srinivasan, managing director, Kotak Investment Advisors, agrees. “IFSC has been progressive and creating an enabling environment. With the new Fund Manager Guidelines, it has been favorable for fund managers like us to set up in IFSC. We deal extensively with overseas assets; If we want to domicile some international capital, it is best done through IFSC,” says Srinivasan. As per the fund manager guidelines, he recently notified framework for fund managers to operate in IFSC. are referring to.
regulatory interval
Despite having an IFSCA, however, some products still require regulatory approval from other regulators.
The Securities and Exchange Board of India (SEBI), unlike the Reserve Bank of India (RBI), does not want to allow its regulated entities, i.e. brokers, to set up entities in IFSC. A broker would need to set up a separate company to operate in IFSC. Reason: SEBI does not want any default in IFSC to affect the domestic markets, which have seen more than 30 broker defaults in the past few years.
RBI has extended the Liberalized Remittance Scheme (LRS) to entities trading in IFSC. Under the LRS, the central bank allows resident Indians to freely remit up to $250,000 abroad in a financial year. However, LRS for IFSC is not at par with the bliss of Dubai.
Leena Chacko, Partner, Cyril says, “If funds transferred under the LRS route to an IFSC entity are not deployed within 15 days, the money has to be remitted, which is not the case for LRS accounts. is.” Amarchand Mangaldas.
Every banking transaction in IFSC is currently a SWIFT transaction (SWIFT is an international payment system). “Hence, if the International Banking Unit (IBU) of State Bank in IFSC wants to transfer money to IBU of Yes Bank, the transaction is not instantaneous. The money first goes to the foreign branch and then comes to the IBU in IFSC. The settlement time for such transactions is usually T+2 (two days after the transaction). In India, such transactions are instant,” she adds.
IFSC needs a central clearing bank to reduce these unnecessary delays. It was supposed to be set up by SBI but till now it has not happened.
Chacko also throws light on the issues of Banking Regulation Act. “The BR Act applies to IFSCA and restrictions on ownership and pledging of shares will apply as applicable to banks in mainland India. As a result, foreign banks, which otherwise could have pledged 100% of the shares of Indian companies in terms of ECB (external commercial borrowing) and other financing, are not allowed to pledge more than 30%. Shares of Indian companies, if the financing is from IBUs,” he added.
work-life imbalance
GIFT City was established with a vision to have world class facilities within walking distance. But as things stand, financial services professionals working in IFSC say they live in either Gandhinagar or Ahmedabad because of the lack of basic things, such as places to eat and socialize. On that front, the Singapore envoy was right on the ball.
“There is not much to do and no food options in the Gift City; “We have to rely heavily on home-brought food,” says an official working at one of the financial services firms in GIFT City. Of the three buildings in IFSC, only Hiranandani has a functioning canteen, And that too, comes under INX.
There are two five-star hotels, the Grand Mercure, belonging to the Accor Group, and The Gift City Club and Business Center. Both are yet to host events or gatherings of financial firms eyeing India. Rather they are often used to host wedding parties. To be sure, two years of COVID pandemic-induced travel restrictions and lockdown have played a part in this.
Again, most financial districts around the world have a vibrant social scene in which young financial professionals relax in a bar at the end of the day. But Gujarat is a state with prohibition of alcohol. Officials told Mint that they have sought exemptions for foreign jurisdictions, but the government has yet to consent.
Many of the problems at Gift City are teething problems that will go away with time. It has taken at least a decade for international finance centers around the world to reach where they are today. It requires infrastructure, hardware, software and regulatory consistency for people to come organically. Since India is a latecomer to a crowded market, its job is the toughest. But the people in charge are confident that Gift City will one day put their ghosts to rest and give Singapore a run for its money – by day as well as at night.