Is GIFT City India's Emerging Capital Market Powerhouse?

“Envision GIFT City: a well-planned city with its own laws that encourages innovation in banks, finance firms, and fintech start-ups. Consider top-notch infrastructure, simplified regulations, and tax benefits—all of which serve as draw factors for foreign investment. This spark accelerates India's development into a global financial centre by drawing in foreign investment and supporting innovative financial services. GIFT City is more than just an economic zone; it's a paradigm change that will make India more competitive and dynamic in the world financial arena.”

Ashima: If you had to explain the concept of GIFT City, to a fifth grader i.e., get into granular details to explain the concept of GIFT City; what would you say?

Moiz: Think of a special zone dedicated only to finance and technology- the two most important sectors of modern world. Envision GIFT City: a well-planned city with its own laws that encourages innovation in banks, finance firms, and fintech start-ups. Consider top-notch infrastructure, simplified regulations, and tax benefits—all of which serve as draw factors for foreign investment. This spark accelerates India's development into a global financial centre by drawing in foreign investment and supporting innovative financial services. GIFT City is more than just an economic zone; it's a paradigm change that will make India more competitive and dynamic in the world financial arena.

Ashima: ⁠Investments in GIFT City are heralded as game-changing for IFSC's unique unified regulatory powers and deemed foreign jurisdiction. How does this work? How has this cut down red tape and increased EoDB in India. 

Moiz: Consider you are establishing a financial enterprise in India. In the past, you would have to work your way through a confusing web of rules from several agencies, each with their own procedures. Now let's go on to GIFT City, a specially created area governed by the International Financial Services Centre Authority (IFSCA), a single body. The IFSCA manages licenses, approvals, and rules, greatly expediting the process. The fact that GIFT City is regarded as a deemed foreign jurisdiction makes things even better. This implies that it is governed by laws based on international best practices and is treated in certain respects like a different nation. This draws in foreign investors who are accustomed to and are at ease with these global norms.

All of this creates a business-friendly environment by streamlining procedures, expediting approvals, and harmonizing regulations across borders. This helps to streamline operations and infuse the Indian economy with much-needed foreign capital.

Although hard data is still developing, the early indications are encouraging. Growing confidence in the streamlined procedures and international-standard rules is indicated by the increased investments in GIFT City, especially from overseas players. Consequently, it is anticipated that this will help India's EoDB ranking rise overall.

Ashima: There are many incentives and exemptions one hears of for start-ups, Investors and others. What is the landscape for Capital Market activities, businesses, stakeholders?

Moiz: GIFT City provides investors (VCs & Angels) with a regulatory sandbox, which is a laid-back setting for trying out new financial services and products. Venture capitalists and angel investors will find it simpler to investigate novel investment opportunities as a result. These business endeavours are further enhanced by tax advantages such as exemption from long-term capital gains tax and dividend distribution tax on investments made in India through GIFT City. In contrast, GIFT City serves as a launching platform for entrepreneurs wishing to enter international markets. Start-ups are able to raise finance more effectively and expand their firms more quickly when laws are made easier and they have access to international investors. Additionally, they profit from the tax holiday program, which provides a substantial financial edge during their critical early phases. 

Furthermore, the advantages go beyond those of investors and companies. GIFT City provides a simplified regulatory environment along with operational flexibility. The capacity to operate in different currencies, fewer regulatory requirements, and quicker approval processes are all advantageous to businesses. This results in a more economical and successful manner of conducting business. On the other hand, GIFT City is a tech company haven. Both established companies and digital start-ups can benefit from its ideal ecosystem, which includes access to state-of-the-art technical infrastructure and a ready supply of highly qualified professionals. All things considered, GIFT City produces a condition where all parties participating in the capital market ecosystem benefit. 

Ashima: With the opening of Indian legal market to foreign law firms, do you see GIFT City turning into the next Dubai DIFC? 

Moiz: It's interesting to note the recent buzz around foreign legal firms operating in India. Although GIFT City has the potential to develop into a financial centre, there are still several steps that need to be taken to emulate Dubai's DIFC. But things are starting to change. With the International Financial Services Centre Authority (IFSCA), GIFT City has welcomed international legal firms since 2021. The advantages of this single regulatory framework over the more intricate Indian legal system are substantial. International businesses need a clear grasp of acceptable practices, which the IFSCA offers. GIFT City has unquestionable growth potential, even if its trade volumes may not instantly rival those of DIFC. With growing trading volumes, GIFT City's distinct regulatory framework and transparency may help it grow into a significant player.

About the interviewee: Moiz Rafique, founder of Privy Legal Service LLP in Ahmedabad, holds a Bachelor of Law with Honours in Constitutional Law from Nirma University and dual Master’s degrees in Space and Telecommunication Law (2017) and Security and Defence Law (2021) from NALSAR University of Law. He excels in Constitutional, Civil, Commercial, and Corporate law, representing clients like Apraava Energy, BMW India, Bajaj Finance, Laxmi Ventures and ICICI Bank. He contributes to international journals and is actively working on Cyber Security and Policy.