MUMBAI: India’s western state of Gujarat, dotted with a few glass-fronted office towers and others under construction, GIFT City does not look like a buzzing hub of international finance. But the architects of this special economic zone, a pet project of prime minister Narendra Modi, insist that it can be India’s answer to Hong Kong: a haven for foreign investors to transact Indian securities with minimal tax and bureaucracy, and for domestic companies to raise funding in foreign currencies.
Despite recent shocks such as the controversial banknote demonetisation of 2016, foreign investors have shown strong appetite for Indian assets, with net inflows reaching 2 trillion rupees (S$40.6 billion) last year as the Mumbai stock market hit new highs.
Yet many investors chose to bet on the Indian market through offshore derivatives trading mostly in Singapore to avoid the tax and bureaucratic burdens of onshore trading.
GIFT City has been promoted as a way of bringing this trading volume to India, while still offering foreign investors the perks that had led them to trade offshore rather than in Mumbai: low taxes, minimal paperwork and dollar-based transactions.
The project finally came to life in January 2017 when BSE formerly known as the Bombay Stock Exchange launched GIFT City’s first exchange, allowing foreign investors to trade using dollars in Indian equity and commodity derivatives.
The National Stock Exchange a younger rival that is now the country’s clear leader in terms of trading volumes launched its own operation five months later.
While trading slowly picked up, reaching an average daily volume of US$270m in December, foreign investors in Indian equity derivatives still overwhelmingly favoured the SGX, which had long been the main offshore hub for such trading.
A sudden boost to GIFT City’s prospects arrived on February 9, when India’s leading exchanges jointly announced that they would no longer provide stock price data to enable derivative trading on foreign exchanges, sending shares in the SGX down more than 7 per cent.
