A new financial district is rising on industry wasteland about 30 kilometres from Ahmedabad, the capital of Gujarat in western India.
The first gleaming towers of glass and steel have already sprung up and bankers are busy with meetings in the modern buildings.
Nearby, construction workers are building what will become a World Trade Centre.
Gujarat International Finance Tec-City, or Gift, as the project is known, was announced when Narendra Modi was the chief minister of Gujarat, back in 2007. Mr Modi India’s prime minister.
Construction work for the ambitious project, located at Gandhinagar, began in 2011.
The development – which is scheduled to cost between US$10 billion and $11bn to complete – still has a long way to go, with its estimated completion in 2025. The master plan shows the financial hub and its surroundings, designed as a “smart city” over 359 hectares, with shopping malls, hotels, homes and schools.
It is being touted as India’s first international financial services centre and is aimed to compete eventually with the likes of Dubai, Singapore and even Mumbai, India’s own financial capital.
“A combination of factors are there to support an international financial services centre in Gujarat,” says Ajay Pandey, Gift City’s managing director and group chief executive.
“The cost of operations in Gujarat is 30 per cent lower, if not more, from some other parts of the country. It is very well connected and, in fact, has the eighth-largest airport in the country, just an hour [by flight] from Mumbai, New Delhi.”
Gift is a joint venture between the government of Gujarat and IL&FS, an Indian company in which sovereign wealth fund Abu Dhabi Investment Authority is one of the shareholders. Gift is responsible for putting the infrastructure in place while developers take on the responsibility of funding and building the other components of the city.
That is not the project’s only connection with the UAE. Gift has recently signed memorandums of understanding with Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre to collaborate on efforts to develop their respective financial markets through initiatives such as exchange of knowledge and exploring business opportunities.
“India definitely needs a financial services hub,” says Saurabh Mehrotra, the national director of advisory at Knight Frank India. “Mumbai is the financial capital but Mumbai is one the costliest real estate [areas] in the country. Hence, a B-city is an ideal choice.”
With a high-speed rail link planned between Mumbai and Ahmedabad, he says the location of Gift did “look like one of the better choices”.
But there are some potential drawbacks that could hinder its growth, he says.
“Gujarat has its own set of challenges,” says Mr Mehrotra. “First and foremost, the biggest challenge is getting a workforce. Companies in Gujarat have struggled to get employees because the general culture of that state is that people prefer to have their own businesses rather than take up corporate employment. It also becomes a little difficult to get high-end staff to move to Gujarat because of various restrictions, including the liquor restriction because Gujarat is a dry state. The society which develops around a financial services hub with high-end investment bankers would look at luxuries of life, for which this state suffers.”
Mr Modi has outlined plans for India to have 100 new smart cities. Being based in his home state, Gift is seen as the leader in the way these plans could serve as inspiration for how other smart cities are built in India.
Part of the reason for Mr Modi’s rise to prime minister is his transformation of Gujarat into a business-friendly destination, raising hopes that he would be able to do the same for the country.
The first banks started operating at Gift last year, with ICICI, Yes Bank and Bank of Baroda among those that have operations there. All of the banks signed up so far are Indian but Mr Pandey says: “We have had discussions with four or five international banks and as we speak they are busy talking to their respective home regulators because they need their approvals to open an office here – banks from Japan, China and the US are there.”
More than 5,000 people already work at Gift. That is expected to double over the next year.
For its part, ADGM says its partnership with Gift could help both destinations to develop their financial markets.
“The growing economies of India and the UAE continue to offer exciting business and growth opportunities for companies, corporates and investors worldwide,” says Richard Teng, the chief executive of the financial services regulatory authority at ADGM. “With markets getting more interconnected and entities operating globally, ADGM is pleased to work with industry and regulators to increase cross-border opportunities for corporates and investors in Gujarat and Abu Dhabi.”
The team at Gift is particularly proud of the infrastructure it has developed and is eager to show off the network of underground utility tunnels, which are large enough for vehicles to drive through them. They will run under the entire city, housing its pipes and cables, so repairs can be conducted without having to dig up roads. A district cooling plant, which uses chilled water, presents an alternative to air-conditioning to be used across the city.
Gift also has India’s first international stock exchange, India International Exchange (INX), which is owned by the Bombay Stock Exchange. It started operations on January 16. Sudhakar Rao, the chairman of the BSE, says INX “will act as a gateway to raise capital for the country’s infrastructure and development needs”. A second exchange by National Stock Exchange is expected to be launched at Gift as soon as this month.
Mr Pandey says that it has taken so long for India to develop an international financial services centre because the Indian rupee is not fully convertible, unlike in the cases of New York, Singapore and London, where the flow of local currency out of the country is allowed.
“The regulations that are needed for an international financial services centre [in India] have to be framed and they have to be approved by everyone,” he says.
He says such a centre is considered a “carved out territory and the taxation and regulations are in some sense carved out and that took time”. He says that Gift’s international financial services zone “is a deemed foreign territory”, which has a unique set of regulations and its international transactions do not take place in Indian rupees but in currencies including the US dollar and the euro.
Mumbai has also outlined plans to develop an international financial services centre, although Mr Pandey does not believe that having another such centre in India makes sense.
“Because the currency is not fully convertible it is very difficult to imagine a second financial services centre. Globally, the best practice is that if this is the case then you should have just one such financial services centre and, having established one at Gujarat, I guess that Gujarat is trying to fulfil that particular gap in the Indian economy.”
Now the biggest challenge Mr Pandey faces is raising funds.
“We are today developing the project based on commercial borrowings,” he says. “Infrastructure projects require long-term funding. That’s one challenge which is still there.”
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