GIFT City Expands India’s Integration with Global Finance for Stronger Financial Connections

GIFT City Expands India’s Integration with Global Finance for Stronger Financial Connections

In a significant development, the Singapore Stock Exchange Nifty (SGX Nifty) has transitioned to the Gujarat International Finance Tec-City (GIFT) International Financial Services Centres (IFSC) under its new name, GIFT Nifty. This move comes after the SGX Nifty served international investors and represented over half of the offshore open interest in the Indian equity index for twenty-two years.

Under the new arrangement, trades will now be routed to the NSE International Exchange (NSE IX) located in GIFT City for trading and execution, marking a major milestone in GIFT City’s aspiration to become a prominent international financial services center. This shift is expected to result in increased trading volumes and liquidity in GIFT City, thereby attracting more investors, traders, and market intermediaries.

The move of SGX Nifty to GIFT City reflects the growing importance of GIFT City as a hub for international financial services in India and signifies a positive development for the financial ecosystem in the region.

GIFT City has emerged as a promising financial hub in India, garnering attention from the international community in a relatively short time. The government’s increased focus on GIFT City has played a crucial role in its success. The banking sector in GIFT City has witnessed significant growth, with a banking asset book exceeding $35 billion. Additionally, the insurance sector has experienced substantial growth, with the sum insured surpassing $30 billion.

Another positive development in GIFT City is the rising number of registered alternative investment funds (AIFs) and fund houses, indicating growing interest from investors in the region. These trends demonstrate the growing confidence of both domestic and international players in GIFT City as a favorable destination for financial activities.

Overall, GIFT City’s progress highlights its potential to become a prominent financial center, contributing to India’s financial ecosystem and attracting investments from across the globe.

The International Financial Services Centres Authority (IFSC) has implemented principle-based regulations and adopted a consultative approach to regulation in GIFT City. This regulatory framework enhances the attractiveness of GIFT City for participants in the financial sector.

GIFT City has been gradually relaxing capital and liquidity requirements, making it more conducive for financial institutions to operate. In the past three years, eight international banks have established banking units in GIFT City, following the lead of Standard Chartered in 2020. GIFT City operates as an offshore jurisdiction within India, allowing it to provide financial services within a liberalized foreign exchange regime. This approach aims to bring financial products and services related to India, which are currently conducted by overseas financial institutions outside of India, back to the country.

By creating a favorable regulatory environment and offering liberalized financial services, GIFT City aims to attract more financial institutions and facilitate the provision of a wider range of financial products and services related to India. These initiatives contribute to the development and growth of GIFT City as a prominent international financial center in India.

In the last union budget, the concessional withholding tax (WHT) rates on external commercial borrowings and rupee bonds invested by offshore investors from other offshore locations were withdrawn. This change has made GIFT City even more attractive for issuing foreign currency loans for Indian corporates with zero withholding tax.

With the withdrawal of concessional WHT rates, GIFT City offers a tax-efficient environment for Indian corporates to raise funds through external commercial borrowings and rupee bond issuances. This development encourages offshore investors to invest in these instruments without being subject to withholding tax, thereby providing Indian corporates with access to a broader pool of international capital at potentially more favorable terms.

The removal of WHT further enhances the competitiveness and attractiveness of GIFT City as a financial hub, attracting more offshore investors and encouraging greater participation in the financial markets within the GIFT ecosystem.

The government has set ambitious plans to promote the growth of financial and technology businesses at GIFT City. By providing financial incentives, improving the ease of doing business, and developing world-class infrastructure, the government aims to create a favorable environment for businesses to thrive.

According to government estimates, the full realization of GIFT City’s commercial potential could result in the creation of 500,000 direct jobs and an equal number of indirect employment opportunities. These jobs will be spread across various sectors, including offshore banking, finance companies, commodity exchange, asset management, global trading, insurance, IT and ITeS companies, and data centers. This highlights the government’s commitment to transforming GIFT City into a vibrant and dynamic international financial center.

Indeed, attracting corporates and multinational companies (MNCs) to establish their regional or global corporate treasury centers at GIFT City is also a focus of the development plans. As an International Financial Services Centre (IFSC), GIFT City benefits from exemptions and relaxations in various Foreign Exchange Management Act (FEMA) regulations that typically apply to onshore corporates. This creates a favorable and conducive environment for setting up cross-border or regional treasuries.

The growth, participation, and investment at GIFT City have indeed witnessed a significant acceleration in the past few years. The establishment of the International Financial Services Centres Authority (IFSCA) as a unified regulator for the International Financial Services Centre (IFSC) has provided a single regulatory framework, promoting transparency and ease of doing business. This consistent policy and regulatory environment have created a favorable ecosystem for financial entities and investors.

The renewed interest among investors can be attributed to the various advantages offered by GIFT City, such as tax incentives, liberalized regulations, and a conducive business environment. These factors have attracted a wide range of entities, including offshore banks, international stock exchanges, alternative investment funds (AIFs), brokers, insurance companies, and other financial institutions, to set up their operations in GIFT City.

The presence of diverse financial entities and services within GIFT City contributes to its growth as a comprehensive financial hub. This growth trajectory demonstrates the increasing recognition of GIFT City as a prominent destination for financial activities, both domestically and internationally. By offering similar advantages to those offered by financial hubs like Singapore, Hong Kong, and Dubai, GIFT City aims to position itself as an attractive destination for corporates to centralize and manage their treasury operations.

GIFT City has the potential to deepen India’s integration with the global financial sector and contribute to India’s growing recognition in the international arena. The development of GIFT City as a technology-driven financial center aligns with the global trends in the financial industry, where emerging technologies like blockchain, artificial intelligence, and digital currencies are reshaping the way financial services are delivered.

By fostering an environment that promotes the adoption of these technologies, GIFT City can become a catalyst for innovation and drive the digital transformation of the financial sector in India. The availability of world-class infrastructure, supportive regulations, and a concentrated ecosystem of financial institutions and technology companies in GIFT City creates a conducive environment for experimenting and implementing these emerging technologies.

As GIFT City continues to position itself as a frontrunner in the emerging financial landscape, it has the potential to attract global players and investments in emerging technologies. This, in turn, will further strengthen India’s position in the global financial sector and enhance its reputation as a hub for innovation and technology-driven financial services.