India – the 6th largest economy in 20211, with a growth outlook of 12.5% for FY22, is a significant contributor to the global financial system and an economic powerhouse. Yet, even as India takes confident strides on the global pitch, there is a perceived void in its participation in international financial flows.
Gujarat International Financial Tec-City (GIFT City) – set up in 2015 as India’s first International Financial Services Centre (IFSC), aims to grow India’s international financial links by offering a business and regulatory environment that holds its own against leading IFSCs around the world. Since then, several Indian banks have established offices in GIFT IFSC, with foreign banks following suit in 2020. The Government of India also granted recognition to the units of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) as local exchanges at GIFT City with a view to developing its capital market infrastructure in 2016.
Transactional volumes – both at the GIFT IFSC exchanges and banks, have grown over the past few years. In October 2020, the Government of India set up the International Financial Services Centres Authority (IFSCA), a unified regulator focused on development of financial ecosystem and oversight at GIFT IFSC.
Since its establishment, the IFSCA has been working towards aligning objectives and regulations with its international counterparts. The development of GIFT IFSC is already benefiting from new policies introduced by IFSCA, but further progress is required to achieve a significant presence on the global financial map. In the 29th edition of the Global Financial Centre Index published in March 2021, GIFT IFSC was identified as among the top 15 financial centres that will become more significant over the next two to three years, scoring particularly well in terms of reputation. It follows that GIFT City would do well to take incisive steps to meet rising expectations and develop into an IFSC.
The UK has established itself as one of the world’s leading IFSCs, with London central to this position. The UK government and regulators have worked closely with industry and other key stakeholders over the years to achieve this status, with an approach underpinned by a principles-based regulatory framework, a strong financial and related professional services ecosystem, and vibrant infrastructure that supports all other economic activity.
This report draws upon the UK model and expertise of the member organisations of the India-UK Financial Partnership (IUKFP) – made up of distinguished leaders across the financial and related professional services ecosystem in both India and the UK – to chart GIFT City’s journey towards becoming a successful IFSC.
It is the view of the IUKFP that both business enablers and ecosystem requisites are essential for seeding and sustaining the development at GIFT IFSC. The recommendations in this report are guided by the underlying mandate to enable and empower businesses at GIFT IFSC with strong governance, competitive positioning, scalability and ability to attract the best talent – enablers which would eventually manifest in a developed and vibrant IFSC connected with global flows. The recommendations in this report focus on the following aspects: (1) Regulation; (2) Infrastructure; (3) Exchanges and Clearing; and (4) Insurance. Specific recommendations in each of these areas have been outlined, supported by the rationale behind each proposed change.
As India’s first IFSC, GIFT City has the potential to transform the country’s participation in international financial flows and further strengthen India’s standing as a global economic powerhouse. By implementing the recommendations outlined in this report, GIFT City’s development into a successful IFSC can be accelerated over the next three to five years and beyond. A vibrant GIFT IFSC would support the development of India’s wider financial and related professional services ecosystem and help to drive broader economic growth, and position it well within the global marketplace alongside key partners such as the UK. By working with GIFT City, UK-based firms will strengthen their international networks and linkages with India. The IUKFP looks forward to supporting further India-UK strategic collaboration on this front and the promotion of greater links between GIFT City and the UK financial services ecosystem.