GIFT Sets to Transform India's Image in Global Arena
Could you please brief us about the India's first International Financial Services Centre GIFT (a joint venture of Government of Gujarat (GoG) and Infrastructure Leasing & Financial Services Ltd. (IL&FS) and the motivation which led the two entities to join hand and came up with this new concept in India?
Several developed countries have successfully established high-tech financial hub, which over time have evolved as international financial service centers. These centers provide suitable regulatory regimes and create a business environment to promote talent and increase capital flow. As they develop, they create significant economic value and new employment opportunities for their domestic economies. The IFSC to be developed by GIFT SEZ Limited in the Multi-services SEZ has been benchmarked against some of the world's famous finance centers such as London, Paris, Tokyo, and Shanghai.
Government of India's initiative to develop International Financial Services Centre (IFSC) in India under the SEZ route is a welcome step towards realizing India's potential in International Financial Services. The need for and benefits of establishing IFSC in the country has been well established by the authorities and the efforts of Ministry of Finance and Ministry of Commerce are really noteworthy for bring IFSC in the country.
In order to realize the aforesaid vision of Government of India for establishing IFSC to bring immense benefit to the country in the form of employment and increase in GDP, the Government of Gujarat has taken first initiative in the country to develop a world class IFSC under its Multi- services SEZ in Gujarat International Finance Tec-city ('GIFT').
GIFT is one of the most ambitious projects ever undertaken in the Indian Infrastructure space and is being designed as a hub for the Global Financial and IT Services Industry. It will provide world class infrastructure facilities and cost-effective and secured Information and Communication Technology (ICT) services to them.
GIFT, designed to be at par with or above International Finance Centre (IFC) is to be developed in Special Economic Zone (SEZ) and Domestic Finance Centre (DFC). It is being developed on 886 acres of land, out of 886 Acre, 673 Acre of land is in possession of GIFT. GIFT Master Plan facilitates Multi-services SEZ of 261 Acre and Domestic Finance Centre and Associated Social Infrastructure on 412 acres. The SEZ is divided into two parts; 130.5 acre for Processing Area and 130.5 acre for Non-Processing Area.
Please tell us the main purpose of setting up this unique and first of its kind project and laid down targets?
International Scenario
The financial sector is at the core of the economic system, providing a range of services to individuals, corporate and federal entities. Economic research demonstrates a well-established relation between financial centre development and economic growth. The international financial services provided by popularly known as 'Global Financial Centers' (GFC) have traditionally been western financial system dominated operations which were initially established in London and New York followed by other cities of the world.During much of the past century, the US & UK with their respective financial capitals, New York and London were the dominant leaders in financial services sector. However, over the past few years, with the rise of new regional powers and global capitalism, other financial centers, especially from Asia have been contributing effectively to the Global markets.
Many believe the prime factors for success as a Global financial hub are:
- a pool of money and sources of finance to lend or invest
- a clear legal framework
- high-quality human resources
Indian Scenario
The last few years have witnessed unprecedented growth in India's financial services sector. Both in terms of its' share in the GDP and in job creation, the importance of this sector is gaining prominence and expected to increase in future. Several developed countries have created high-tech financial hubs serving as focal points of their nation's development journey; be it Shinjuku in Tokyo, Lujiazui in Shanghai or the London Dockyards in UK. With a conducive environment, these centers enhance capital flow and give a great impetus to talent. These institutional deficits are just those that raise transaction costs for international financial services. The trend observed among foreign investors is to seek to take an indirect route into India for investments, even leaving tax considerations aside. These investors are converging the economic potential of the huge Indian market with more sophisticated financial institutions in centers like Mauritius etc. for transactions instead of undertaking investments through India's financial capital Mumbai or other prominent metros like New Delhi, Chennai etc.
In view of the rapidly increasing internationalization of financial transactions, it is imperative for India to establish a competitively strong presence among League of Nations having international financial centers.
As India's financial and capital markets have acquired greater depth and size, India could consider serving the needs of international clients and become a global financial center. This is the purpose behind setting up this unique project.
What is the estimated cost and sources of financing the project?
The total cost towards developing world class infrastructure is estimated at around Rs.11,000/- crore. The total investment in the project covering buildings, infrastructure, interior and allied facilities would be around Rs.78,000/- crore. The infrastructure cost would be funded by the sale of development rights, debt and equity.
Please expatiate on the magnitude of this project in terms of built-up space including development of commercial, residential and social infrastructure facilities. Also a word about the system planned for its external connectivity and transportation i.e roads, metro, BRTS, etc?
McKinsey & Co. has estimated that all over India financial services will contribute around 15% of GDP by 2020 from the present contribution of around 5%. This in turn would create 10-11 mn jobs from the present 3-4 mn jobs in financial service segment.
The above would require around 800 mn sqft of built up area (BUA) all over India to effectively cater to this requirement. GIFT is planning to develop 62 mn sqft of BUA with the current height restriction of 122 mtrs and will go upto 92 mn sqft of BUA with additional height clearance. The total BUA has 67% of commercial, 22% of residential and 11% of social development.
Government of Gujarat has proactively agreed to provide MRTS, BRTS, Roads & bridges connecting to GIFT City in phase I itself.
As its two towers have already been completed and they are about to start operations from April 2013 and September 2013 respectively; by when do you think the entire project will get completed and operational?
The entire 62 mn sqft is planned to be developed in 3 phases of around 4 years each and overlapping each other with target to complete the project in 10-12 years.
What is the response of the industry to this project, particularly from the banking and financial institutions?
The response from BSFI sectors has been very encouraging. Various banks and financial institutions are showing greater interest to locate their offices in GIFT as the project provides on-shore & off-shore activities which can be provided from the same location. It is considered very attractive to BSFI sectors.
What would be various financial services proposed to be rendered through this Centre and the business areas to be catered through these services?
The various proposed financial services are as below:
- National Financial services operations' hub
- Regional/functional headquarters for financial services players
- National headquarters for players
- Private Banking hub for NRIs/ Regional HNWs
- International microfinance hub
- International commodity trade hub
- Participation in global capital markets
- Global Hub for IT services for Financial services sector
- Domestic & International Banking and Insurance Enclave
- Domestic & International Technology Enclave
- Domestic & International Exchange Enclave
- Domestic & International Corporate Enclave
As GIFT is targeting to provide 10% of overall demand in the country, there would be many more centers coming up in India on the same line as GIFT City.
However, IFSC can be provided from multi-service SEZ as per the current GoI regulations and currently the IFSC status has been given to GIFT multi-services SEZ. GIFT SEZ is India's only approved IFSC by GoI.
As per the demand assessment done by McKinsey, they have indicated that in coming years India will need 4 to 5 financial centers to cater financial services industry.
As per the law, IFSC status can only be given to multi- services SEZ, because GIFT City is India's first multi-services SEZ with IFSC status the act says after success of first IFSC only next IFSC will be approved.
Having 44 years of professional experience in planning, design, project development, execution (including financing), R&D of large projects; how have your journey been progressing in infrastructure development space so far? Have you rated the standard of Indian project execution vis-à-vis international projects?
The journey in infrastructure development has been quite satisfying primarily due to the fact that I was part of many such projects which have been successfully completed and considered as benchmark. When one is involved right from the planning to execution stage, the experience one gains is immense. Some projects are likely to be benchmark for going forward. This feeling that we have not only worked for ourselves but also for our nation, is gratifying.
As far as Indian project execution skills are concerned, we have yet to learn many things from international projects. Though, due to technological advancements we have improved a lot, we are still lagging few years behind as compared to even other developing countries like China, Brazil and Indonesia. However, the rate of progress is highly satisfying. We need to learn to complete projects on time without cost over-run. That's the biggest challenge for government. Even in PPP projects, there are instances of cost and time over-run, which actually diminishes the significance of the project.
There are number of prestigious projects to your credit as you have done specialization in Transportation Engineering and Project Financing; Please enumerate some of the important projects executed by you in terms of set benchmark on quality, timelines and project cost targets?
When it comes to overall important projects that are close to my heart, I would definitely rank GIFT City and planning & development of Navi Mumbai on similar lines. When at planning stage, both the projects were considered as one which would change the global perception about India's execution skills. Both would transform India's image at global level. At planning stage, the consensus understanding about both was that they would be regarded as benchmark projects at global level on completion. While Navi Mumbai project is currently considered one; we believe that GIFT City would also be considered on similar lines once completed.
When it comes to benchmark on quality and timelines, I would rank Mumbai-Pune Expressway and Western Freeway Sea Link on similar lines.
NBM&CW July 2013
