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GIFT City: Not a Failure but Pool of Opportunities

The Finance Minister has announced the plan to create a world-class fintech hub at GIFT IFSC. Several companies have lined up

In budget 2021, the union finance minister, Nirmala Sitharaman, announced setting up a high-class fintech hub Gujarat International Finance Technology City, popular as GIFT City.

Notably, India has been a growing market for the fintech space with a 22.7% CAGR between 2020 to 2025. There are expectations that it would reach over 6 billion USD by 2025, pushing the country’s fintech activities and driving innovation.

GIFT SEZ and iCreate, International Center for Technology and Entrepreneurship, a startup incubator, has signed an MoU to facilitate the move. Together, they would create an enabling portal for collaboration in the fintech space, stated GIFT City spokesperson to the media.

It is worth highlighting that GIFT city is spanning across 886 acres of land with 62 mn sq ft of built-up area. It includes office spaces, schools, residences, hospitals, hotels, clubs, retail, and several recreational facilities. It also has a conducive multi-service special economic zone and an exclusive domestic area. The market has termed GIFT City as a planned business district of India.

According to the official website (1), the city is equipped with the latest technology and advanced infrastructure service delivery that provides international living and working standards. Moreover, GIFT City also embraces the country’s first IFSC, International Financial Services Center.

Anupam Jalote, the CEO of iCreate (2), said to the media that considering fintech as one of the largest verticals within the Indian startup ecosystem, GIFT City’s proximity to banks, regulators, insurance firms, and other financial institutes, vital for a successful any fintech ecosystem, it offers the right environment for it.

The financial hub that would be established at GIFT CIty would also aid in creating more than 1.5 lakh jobs for the country’s youth. Moreover, it would also boost AI, Artificial Intelligence, ML, Machine Learning, and more governance and drive tech-enabled tax functioning.

The GIFT City vision is to create an exceptional IT and economic zone for India to offer services to India and the global market.

Apart from this, the budget also announced credit access of 20,000 crore INR via a bill to boost small businesses, MSMEs, and firms working in focus areas such as infrastructure and manufacturing. The budget also announced a 1,500 crore INR scheme to accelerate Digital Payments in India (3).

Companies Setting Up at GIFT City

The IFSC Authority has come up with a special framework that would enable ancillary services to build a level playing field for IFSCs in India and their worldwide peers such as DIFC, Dubai International Financial Center.

Consequently, ancillary service providers engaged in accounting, legal, and taxation, among others who could so far not set up their operations at the IFSC Center in India at GIFT City, can now do so.

Since the notification issued on February 10, over a dozen companies have lined up to set up their spaces at GIFT City near Gandhinagar, Gujarat, which houses India’s first and only IFSC.

Since ancillary services in the form of consultancy firms, audit firms, professional services, administrators, and trustee services play a vital role in the center’s development, they are part of the international financial centers across the globe. The IFSC Authority framework enables these firms to set up their operations in GIFT IFSC, stated Dipesh Shah, the head of development, IFSC Authority (4).

It is worth highlighting that more than 2,600 firms are operating at DIFC, Dubai. And out of this, about 800 are finance-related companies, stated a senior official of a firm that recently signed up to set up their offices at GIFT City. It means that about 1,800 are non-finance firms, stated an anonymous source to TOI (5).

GIFT City is now aiming to offer a complete ecosystem for the financial service sector with the ancillary services companies in place.

According to sources at GIFT Cities, some3 of the consultancy institutes that have decided to set up their operations at the GIFT City IFSC in the past couple of days include KPMG, PWC, Ernst & Young, Dhruva Associates, and Moon SEZ. Certain law firms such as Nishit Desai Associates, SWIFT India, and Khaitan legal have also evinced interest in setting up their operations at the country’s IFSC.

The official further added that fund administrators like Basiz Fund, Vistara, Wilson Financial Services, and OPS Global Fund Administrators have also decided to park their operations at the GIFT City.

These service providers can offer services to companies set up in the IFSC. They can also offer services to financial services firms from foreign jurisdictions for different activities in the Indian IFSCs and other related activities in the global markets.

According to the new framework, these firms can also cater to Indian firms who propose to carry out, open, or set up operations in IFSCS or overseas jurisdictions, provided consideration is collected in freely convertible currency (6).

Tax Incentives to Attract Global Players

Tapan Ray, the GIFT City Managing Director and Group Head (7), stated in a release that the slew of tax incentives declared in the union budget had reaffirmed the Indian government’s commitment to developing GIFT City IFSC as a global financial hub.

The announcement would help attract overseas players in the aircraft leasing, fund business and financial business, and offshore investment banking sector to set up their base operations at GIFT City IFSC.

Ray further added that the development of a world-class Fintech hub at GIFT City, as published in the union budget 2021, would go a long way in developing and promoting the Indian fintech startup ecosystem. GIFT City would provide a platform for firms to expand their offerings to global markets.

Moreover, the fintech hub would also facilitate research, innovation, and development of the new-age skills to create new job opportunities and attract quality talents to the GIFT City (8).

Opening Doors to Residents Employed Outside

GIFT City has allowed more people to own a home by tweaking rules related to occupancy and allows people who are not employed in GIFT City to live within the campus.

A state government official stated that previously only an individual working in GIFT City could purchase a house within the campus. The rule was changed around three years ago and allowed people not to purchase a house in the GIFT City. However, such people could not live there.

They’ve again changed the occupation rule and allowed people not employed in GIFT City to own a house and reside within the campus. A recent cabinet meeting held at Gandhinagar made the decision.

However, the relaxation has been kept to the first 5,000 residents. It is done to encourage more investments in the residential side of the project. A person would buy a house only if he or she can easily sell it. Hence the relaxation would help attract investors. It would also ensure enough dwelling units are ready for occupancy and offered at any corporate on a rental basis.

There has not been any issue with government resolution regarding the matter. After the exit of IL&FC, the Gujarat government is fully managing the GIFT City. It is built on walk-to-work concepts, and previous restrictions prevented it from turning into a real estate project (9).

The entry barrier was inhibiting the supply of residential units. Moreover, banks were reluctant to offer home loans. However, with these changes, outsiders can also stay within the GIFT City campus. The number of those employed in GIFT City is small, and the market is not enough to justify the investment. At present, more than 10000 people work in 220 units in GIFT City.

There are expectations that more than 25,000 smart houses will be built in GIFT City, spread across 833 acres on the banks of the Sabarmati river that remains dry for the major part of the year. It will be vertical development with 1, 2, 3, and 4 BHK houses measuring 800 to 2,000 square feet.

These houses would be the first of their kind to end the usage of AC with chilled water from the district cooling systems already functional. They will also be connected to the automated waste collection center, which is also functional.

Currently, Janaadhar Pvt Ltd, a Bengaluru-based residential scheme, is the only existing residential scheme at GIFT City. The scheme with about 330 units is part of the affordable housing sector and is currently occupied by employees who fall in the low-income groups.

The residential projects currently under construction include 10,00 apartments by Sobha Ltd and 150 apartments by Ahmedabad-based Sangath Group. Moreover, the State Bank of India has also proposed to build a residential tower for its employees.

Since the Gujarat government is monitoring the operations, there would be no issue regarding compliance.

Sanjay Jain of Sangath Group (10) stated that they have already completed 35% of bookings for phase one of the residential project, where they are building 168 smart homes at prices between 56 to 75 lakh INR.

Their building according to the smart features of GIFT City. These buildings are high quality and are earthquake resistant. The quality they offer through these homes is incompatible with similar residential schemes in Ahmedabad or Gandhinagar.

Out of the proposed 62 mn sq ft of development in the GIFT City, the commercial development includes offices and facilities for exhibitions and conferences that would account for 67%, 42 mn sq ft. A Residential area of 14 mn sq fr is planned and would occupy 22% of the total vertical development. About six mn sq ft would be used for social facilities such as restaurants, retail, and other entertainment facilities (11).

The Status of GIFT City

The GIFT City was conceptualized in 2007. But the actual groundwork, originally a joint venture between the Gujarat Urban Development Company Ltd and IL&FS, Infrastructure Leasing and Financial Services Ltd, started in October 2011 as the worldwide meltdown following the Lehman crisis adversely impacted the project.

Then, Chief Minister Narendra Modi inaugurated the first multi-storeyed structure in January 2013. It was Narendra Modi who was instrumental in the first wave of investments into GIFT City.

In February 2014, before the Lok Sabha Elections, Modi spearheaded a national summit on financial services and held a closed-door round table discussion with banks and insurance firms top officials and presented allotment letters to the State Bank of India, World Trade Center, Tata Communication, I-Plex and Global Group for investing 1,000 crore INR in the project.

In the past ten years, 18 to 20% of the proposed greenfield development at GIFT City has been completed. In Phase-I, about 2,000 crore INR is already spent on infrastructure, and the project has attracted over 11,000 crore INR investment.

The first phase had targeted to offer more than 30,000 jobs. Today, more than 10,000 people work in 225 units in GIFT City and have 14 multi-story projects dotting the skyline. However, it is a far cry from its target to develop 110 high-rise buildings and create more than 10 lakh jobs by 2020.

The project survived its initial phase because of the Gujarat government’s support, which gave it land. Moreover, the project was heavily marketed through the Vibrant Gujarat Summit.

The first major fillip for GIFT City came when Arun Jately, then finance minister (12), announced to place regulation to kickstart India’s first IFSC within GIFT City in Union budget 2015-16.

After a year, Security Transaction Tax, Dividend Distribution Tax, Commodity Transaction Tax, and Long Term Capital Gains were waived or abolished to attract more investments. In the financial year 2017, the officials announced a unified regulator for the IFSC. In 2019, there were a series of SOPs, including tax holiday extensions and announcements for aircraft leasing.

The Phase II of the project was supposed to kick start in 2015. However, after a delay, it has started last month with a one million sq ft allotment to Savvy Infrastructure, an Ahmedabad-based firm headed by the national chairman of CREDAI, Confederation Real Estate Developers’ Association. In the second phase, GIFT City would spend more than 4,000 crore INR in infrastructure development in a total of 20 mn sq ft.

GIFT City Corridors

At present, about 300 people stay in GIFT City, and two more residential projects are coming up. It is worth highlighting that those working on this project have an annual salary package ranging from 2.4 lakh to 3 crore INR. The biggest salary packages belong to people working with the IBU, IFSC Banking Units.

Most people working there are from Gujarat. However, according to officials, Human Resources from Pune, Mumbai, Hyderabad, Banglore, and Gurugram have also migrated to the project.

The biggest employer is Bank of Baroda with 2,000 employees, followed by Tata Consultancy Services with 1,200 employees and Bank of America with 1,000 employees (13).

While it is difficult to quantify whether GIFT City has attracted businesses overseas, the trend has started. There are applications from half a dozen India-centric Alternative Investment Funds from Singapore, Mauritius, and within the country. Moreover, things have paced up after the unified regulator has joined.

A Special Economic Zone, covering about 261 acres within GIFT City, exported services worth 4,000 crores INR in 2019-20. And the exports stand at almost 3,000 crore INR in the current financial year.

GIFT City is also setting up an international bullion exchange. There are expectations that the first trade would take off in June or July 2021. The regulation was finalized in December 2020, and now NSE, BSE, and MCX have agreed in principle to develop one exchange within GIFT City. The bullion exchange would be set up within the IFSC.

Bullion exchange services are already commenced, with Sequel Logistics setting up precious commodities vaults for gold and silver storage. There are expectations that the company would get its first consignment later this month. According to officials, Siddharth logistics would also set up another such vault.

GIFT City is also setting up a fintech hub that would service the technological requirements of financial institutes such as banks. It is in talks with ADB, Asian Development Bank. It has built fintech centers in states like Odisha, and GIFT City wants to do the same on a larger scale.

It would be a combination of infrastructure creation and soft skills development. If the deal materializes, the assistance will come in a soft loan form via the union budget. Notably, GIFT City is already working with iCreate and the Bank of America to build the fintech hub (14).

Is Gift City Failing?

Even though the GIFT City offers a set of advantages that no other location in the country offers, almost a decade and a half later, it fails to attract businesses and investments.

It has not developed the first phase even though it has full support from the state and the Indian government. About 9,000 people are working there against the estimated 1 million jobs (15).

The city has offered numerous perks to IT firms, but barring Oracle, TCS, and few others, not many firms have opened their GIFT offices. Most of the companies have either public center entities or partner companies directly or indirectly associated with the project development.

Even though GIFT City is housing more than 40 banks and other financial institutes, fintech startups catering to a wide array of consumer base stated that it is nowhere near a determining factor for them to move or expand their base.

While the GIFT City’s infrastructure cost is shooting up, companies such as Infosys, TCS, and Salesforce have accepted the WFH model as the new and sustainable workplace culture. Several fintech startups have also made similar arrangements.

The emergence of work from home as the new culture can reduce the GIFT City’s fintech hub’s success chances.

Moreover, GIFT City is also likely to witness tough competition from Hyderabad, which houses some of the biggest giants such as Microsoft, Amazon, Google, and Facebook. It also launched Hyderabad Fintech Forum in 2019 to enable and strengthen its fintech ecosystem (16).

However, we believe that GIFT city is an audacious idea of the Indian government (17). Even though GIFT City has only built about three buildings over the past ten years, it has already laid down the entire infrastructure for district cooling, piped gas, suction sewerage, underground electricity supply, and communication lines.

Most of the paperwork needed to set up the country’s first international duty-free trading zone and land allotment and plan sanctions are already completed.

It is also worth highlighting that cities don’t come up overnight. One cannot judge a project and its scale-based on looking only at the period.

For instance, Gandhinagar had remained low profile and unpopulated for decades, but that did not make it a failed city because it served its purpose of being an administrative place.

Similarly, if GIFT City turns itself into a financial hub of Gujarat in the coming years and connects well with the global economy, the questions about the time to build the project or the number of buildings would be redundant.

We also believe that there is no completion of such projects since they keep on developing and changing. Even though many criteria still need to be fulfilled to turn GIFT City into an attractive hub, they have built a good foundation that is not visible from a far distance.