Gift City: Investment Opportunities

GIFT City – IFSC, with its robust banking ecosystem, offers compelling alternatives for both private and public sector banks, as well as numerous global MNC banks. Indian and foreign banks operating in India have the option to establish IFSC banking units (IBUs) in the IFSC – GIFT City. Additionally, foreign banks without an existing Indian presence and wholly-owned subsidiaries of foreign banks in India are authorized to set up banking units in the IFSC. The IFSCA Banking Regulations, 2020, define the regulatory guidelines for IBUs and their operations within the IFSC.

Due to the more accommodating regulatory environment, both foreign and Indian banks are seizing the opportunity presented by IFSCs to cater to the cross-border needs of Indian and international clients. IFSC – GIFT City has experienced a notable surge in banking activities, particularly in the past two years. The primary operations of the IBUs include managing external commercial borrowings, foreign currency term loans, trade finance, non-deliverable forwards (NDF), and other related activities.

GIFT City boasts an active insurance market, handling over US$ 30 billion in transactions by insurance and reinsurance companies, along with insurance intermediaries. To date, more than 18 entities have established themselves in the IFSC – GIFT City, operating across various sectors including non-life insurance, reinsurance, and insurance intermediation. Additionally, significant amendments have been made to the IFSC Insurance Office (IIO) regulations. These changes elevate the IIO to the status of Foreign Reinsurance Business (FRB), further expanding the scope and potential within the insurance sector.

The GIFT City houses 35 plus fintech entities, two international stock exchanges in addition to the first bullion exchange in the country.

As the IFSC – GIFT City is a distinct financial jurisdiction within India with no restrictions on currency conversion and a single regulator for banking, capital markets, insurance, and funds management, it is anticipated that increasing number of FinTech firms would explore the opportunity of seamlessly integrating finance and technology.

Similarly, the IFSC – GIFT City also provides investment avenues for various types of funds, including Alternate Investment Funds, Venture Capital Funds, Exchange Traded Funds, Portfolio Management Services etc.

Ultra-High Net Worth Families are increasingly diversifying their investments beyond traditional avenues, and GIFT City presents a prime opportunity for this expansion.
Regulations have been further eased to include various entities under the ‘single family’ scope. This includes sole proprietorships, partnership firms, companies, limited liability partnerships, trusts, or bodies corporate where the Family holds a ‘substantial economic interest’. The Family Investment Fund (FIF) framework has been expanded to permit additional investment vehicles, treating them as integral parts of the FIF. Recent modifications also safeguard the interests of minority non-family members and allow contributions by non-family members in exchange for economic interests, making the FIF an attractive investment choice for Business Families.
However, despite growing interest from Indian families in establishing family offices abroad, some regulatory challenges still need to be addressed.

Intermediaries are crucial in bridging the gap between clients and regulators for various regulated financial products and services. They are vital for establishing a thriving ecosystem in any jurisdiction aiming to be a significant player in the capital market sector.
The IFSCA (Capital Market Intermediaries) Regulations, 2021, have been implemented with a focus on facilitating ease of doing business and adherence to core principles. Within the IFSC ecosystem, the range of capital market intermediaries includes broker-dealers, clearing members, depository participants, investment bankers, portfolio managers, investment advisers, custodians, credit rating agencies, debenture trustees, account aggregators, and more. These entities play a pivotal role in the functioning and growth of the capital market domain within the IFSC.

Countries like Ireland, the USA, China, Singapore, and Hong Kong have established themselves as global centers for the aircraft leasing industry. Their success is attributed to conducive tax policies, advantageous accounting norms, and a stable business environment that supports aircraft leasing and financing.
To position India as a leading aviation hub and to foster the development of the aircraft leasing and financing sector, the Government of India has classified ‘aircraft lease’ as a qualified financial product under the IFSCA Act, 2019. This category includes operating and financial leases, as well as hybrids of the two, for aircraft, helicopters, engines, and their components. On 18 May 2022, the IFSCA introduced a comprehensive regulatory framework for aircraft leasing under the IFSCA (Finance Company) Regulations 2021. This move is aimed at promoting and facilitating aircraft leasing activities from the IFSC – GIFT City.

Until recently, global universities were not permitted to operate in India. However, the IFSC – GIFT City has broken this barrier by allowing foreign universities to establish their presence in GIFT City. Following this, in January 2023, the University Grants Commission unveiled a draft policy enabling foreign universities to set up campuses across India.
While the entry of foreign universities into India, outside of GIFT City, might take additional time, GIFT City has already welcomed its first two universities from Australia. Moreover, numerous other universities from the United Kingdom and various countries are actively considering establishing campuses in GIFT City. The Australian universities are slated to start their classes from 2024.

Ship leasing is an approved activity under the IFSCA (Finance Company) Regulations, 2021. Following the successful implementation of aircraft leasing through the Framework for Aircraft Lease, the IFSCA is now focused on promoting an IFSC as a center for international ship leasing and financing. This initiative aligns with the ‘Atma Nirbhar Bharat’ vision, aiming to create a supportive regulatory environment for ship leasing.
Based on expert recommendations and a special committee report, the IFSCA has recognized ‘ship lease’ as a financial product under the IFSCA Act. This includes operating leases and hybrids of operating and financial leases for ships, ocean vessels, engines, or any other relevant parts.
India, with its substantial export-import trade, predominantly charters vessels rather than owning them, leading to significant expenditures on chartering foreign-flagged vessels for international trade. By advancing ship leasing, financing, and ownership in the IFSC – GIFT City, India aims to boost employment and economic growth in the shipping industry, thereby positively impacting the broader Indian economy.

Recognizing the critical role of service providers in developing a strong financial ecosystem, the IFSCA introduced a framework in February 2021 for ancillary services in an IFSC. This framework applies to all ancillary service providers operating within an IFSC and covers a range of permissible services. Notably, the Union Budget 2023 proposed amendments to the IFSCA Act, aiming to include statutory provisions for these ancillary services.
Service providers are authorized to participate in various activities, including legal, compliance, and secretarial services, auditing, accounting, bookkeeping, taxation, professional and management consulting, administration, asset management support, and trusteeship services. Many consultancy and law firms have already established their operations in the IFSC – GIFT City under these regulations. They are actively delivering eligible services to appropriate recipients, significantly contributing to the growth and development of the IFSC – GIFT City ecosystem.