In 2007, the Government of Gujarat set up the International Financial Services Center (IFSC) at Gujarat International Fin-Tech City (GIFT City) to develop as a Global Finance Center. Over the past six-odd years, the city has seen slow progress. It is time to rediscover GIFT City not only as a physical destination for global finance, but also as a digital destination for global financial transactions.
Global finance has shifted from physical to digital over the past 14 years. Establishing a new IFSC today is not about old-world attributes such as physical positions, permanent establishments of companies in the physical space, or the movement of expertise or knowledge; All this is the old world. New-World IFSC’s vision is to move from its current position proposition to become a transaction platform that captures the global financial transactions of investment and, more importantly, digital commerce. Contrary to the past perspective of investment flows, to reverse the future flow of global transactions from an outsider’s perspective. The Gift City must abandon the siege that is merely attracting (and capturing) flows into India. For any chance of future success, it must consider itself as the enabler of global transactions and stand up for the international investor on this futuristic proposal.
Concept vs. Reality: Gift City was a comprehensive development hub. Built on the outskirts of Gandhinagar in Gujarat on 881 acres, it is a convenient multi-service special economic zone (SEZ) spread over 261 acres and an additional 625 acres of specialized domestic tariff area (DTA). It was conceived in 2007 by the then Gujarat Chief Minister Narendra Modi. It was regulated by the Central Government in 2015 immediately after Modi became the Prime Minister of India.
The plan envisages the construction of 62 million square feet of commercial, residential and social spaces.
However, international finance is no longer dependent on physical facilities because skilled people are already working digitally from remote areas. Key issues are taxes and incentives to initiate and fulfill transactions. Skill is position-independent; It can be plugged in as an interference or algorithm.
However, this change in global finance is being ignored by regulators and policymakers as they build on the obsolete analog models of the already highly digitalized financial services world.
Financial services have huge potential for growth. The dedicated hub will significantly contribute to the development of this sector. In 2015, the financial sector provided 5 million jobs and 5% of India’s gross domestic product (GDP). With the right planning and the right incentives, financial services have the potential to increase GDP contribution by 15% and employment to 11 million.
From Location-Incentive Model to Transactional-Incentive Superstock: A recent report published by the Global Financial Centers Index ranks GIFT as the city’s third of 15 centers of increasing importance over the next few years. But its growth as a physical place is limited by physical and cultural limitations. An IFSC deals with the flow of finance and financial products and services across borders, making it mandatory to carry out transactions currently conducted by foreign financial institutions and foreign branches / subsidiaries of Indian financial institutions. However, the focus is on attracting investment from expatriate Indians or coming to India.
The goal should change — from attracting people, companies and offices, to attracting the transactions and flows of the global capital movement instead. India should create a world-class digital super stock with the services stock and tax incentive stock and other incentives needed to attract global transactions through GIFT City. The Unified Payment Interface (UPI) for transactions between banks and digital wallets requires the creation of a digital superstock with a data center and public-spirited technologies that are similar to digital stock.
Similar to the UPI stock that has shown its potential, the services and incentive stocks interact with each other and many users of the system through application programming interfaces (APIs).
Working with GIFT City Digital Superstock: The basis of this digital superstock should be the custodian bank of India that can provide global wealth management services in investor-selected currency. This would be possible if the Banking Regulator of India, the Reserve Bank of India, licenses the custodian bank of India under the new Differentiated Bank Licensing Scheme.
Businesses such as reinsurance, insurance, banking services and investments in equities and goods are traded through this digital superstock. Stock exchanges and other critical service providers get into it to make the process seamless.
In order to get the critical mass of transactions and volume into GIFT City Superstock, the focus of the regulations must change. GIFT should be allowed to set up branches in the city following the regulatory approvals applicable to intermediaries (banks, custodians, brokers and fund managers) in India. These branches are exclusively for foreign or foreign investors and operate through digital super stock. There is already a critical mass of intermediaries providing these services, whose capital bases are well; On the model of prudent standards applicable to banks, only increasing capitalization should be linked to business size.
K. Yatis Rajawat public policy expert, the Center for Innovation in Public Policy, the think-tank
This is an abbreviated version of the policy prepared by the author for the Center for Innovation in Public Policy (www.cipp.in/assets/img).