The City of the Giveaway turns out to be a Giveaway as it attracts foreign investment to India through the NDF market
GIFT City or The Gujarat Finance Tec-City serves as a global financial and technical center. It is ideally developed to build a globally recognized and integrated city with modern facilities. The aim is to create a healthy habitat that ensures growth and development in various sectors, namely, finance, technology, education, culture, health, etc.
Following in the footsteps of all developed nations, the Modi government has taken the initiative to build a city with all facilities and a safe and peaceful environment. The idea of ââcreating The Gujarat International Finance Tec-City or The GIFT city was invented during the Vibrant Gujarat Global Investor Summit 2007, where the East China Architectural Research and Design Institute (ECADI) took the lead in Planning.
India’s first operational smart city is located near the Sabarmati River and approximately 12 km from Sardar Vallabhbhai Patel International Airport. The goal of this GIFT city, currently under construction in Gandhinagar, Gujarat, is supposed to serve as a central business district. The city has a complete set of residences, educational establishments, health infrastructure, transport, etc., in their modern and technologically improved versions.
The development model of this 886-acre city ensures sustainable development. The whole model has been divided into three phases, in which the first phase focuses on the development of the basic elements, i.e. residential areas, schools, hospitals and office spaces. In April 2021, around 225 companies and units started working and employed more than 1,200 people in the city of GIFT.
Banks Use GIFT City Facilities to Improve India’s Economic Status in NDF Markets
Seven financially dominant lenders including Axis Bank, HDFC Bank, ICICI Bank, etc., control the economy of the township under construction. Their motivation is to use the facilities of The GIFT City as a central business district to leave a huge impact on India in the Undeliverable Currency Derivatives (NDF) market. A recent report from The Economic Times said that in April 2021, an amount of Rs 10,500 crore had already been sanctioned for the city of The GIFT.
This would open the doors for overseas investment for India due to the progressive currency convertibility which would be an advantage.
As estimated a year ago, the average daily income from overseas trade in the city of GIFT has increased from $ 1.5 billion to $ 2 billion, from $ 100 million to $ 200 million, as reported. The Economic Times.
Recently, they interviewed executives from the State Bank of India, IndusInd Bank, Kotak Mahindra, and Standard Chartered. HDFC Executive Vice President Bhaskar Panda said: “Average daily volumes have increased for OTC NDF offshore transactions during the onshore period.” He also said: âThis has helped close the gap between offshore and onshore prices, bringing relative stability to the exchange rate. This in turn will help attract foreign investors, who still prefer full convertibility of the currency market. “
IndusInd, Kotak and SBI, on the other hand, have chosen to remain silent. At the same time, Anupam Verma, Head of International Unit of IFSC GIFT City, said that âNDF activities will be one of the pillars of our business strategy at GIFT City, which provides an excellent platform to meet to global banking needs â.
Reserved Bank of India in GIFT City: from dawn to date
At first, when the idea for the Greenfield Smart City Project aka The GIFT City was drafted, the Reserve Bank of India (RBI) could not touch NDF policies on rupee-dollar currency issues. But in the current situation, we are witnessing the way in which the Central Bank is pushing private banks and public sector pawn shops to act accordingly in interventions in the NDF market.
The Reserve Bank of India has authorized the banks to operate the international financial services center at The GIFT City-Ahmedabad, participating in the NDF market from June 1, 2020. With this decision, Anindya Banerjee, the currency analyst at Kotak Securities, commented, âLiquidity has improved dramatically in the GIFT city NDF market with major local banks trading. “
On October 14, 2021, RBI Deputy Governor T Rabi Shankar sent a message to his co-workers, asking them to be actively prepared to meet any possible challenges while supporting a full conversion of the currency of the capital.
Shankar said at the Annual Day of the Fifth Indian Association of Foreign Currency Brokers (FEDAI). As stated, âa key aspect of currency convertibility is the integration of financial marketsâ. He also said: “An effort has already started in the interest rate derivatives segment.” “NDF-onshore spreads narrowed significantly after allowing Indian banks to enter the NDF space.”
Proof of article read and edited by Shreedatri Banerjee