The race and lure to set up India’s international finance centre is fast turning out to be a tale of two cities — Ahmedabad and Mumbai — and subtle politics playing out around the two western business hubs.
At a recent meeting with finance and commerce ministry officials, managers of Gujarat International Finance Tec-City (Gift) — the special economic zone near Ahmedabad — said it would be against global best practices to have a second offshore financial centre in a country with partly-convertible currency, a person familiar with the discussion told ET.
The concerns voiced by Gift comes at a time the Maharashtra government is trying to cobble together a plan with senior bankers to carve out a slice of Mumbai, India’s financial capital, as a global financial services centre that would over the years compete with Dubai and Singapore.
Gift authorities fear that two finance centres would not only be unviable but could also confuse investors. “Besides, if Maharashtra is given the permission, it would be difficult to refuse other states.Even if the law allows, multiple centres could be a supervisory challenge for regulators like RBI and Sebi,” said a government official who attended the meeting where officials of the state-controlled Mumbai Metropolitan Regional Development Authority were also present.
While Gujarat, under Narendra Modi’s regime, was the first state to make a serious effort to set up a global services and finance district — having applied in 2010 and received the central approval a year later — the Devendra Fadnavis government of Maharashtra has been trying over the past few months to revive the dream of building a finance SEZ in Mumbai where all leading banks, financial institutions, brokerages and stock exchanges are headquartered.
Despite repeated recommendations from senior financial services experts in the last 15 years to create an offshore finance hub in Mumbai, earlier state government rarely pursued the idea which was put on the back burner after the market meltdown of 2008.
Mumbai has the legacy. Many bankers would find it easier, but Gujarat has the first-mover advantage. In the last 60 days, deals worth $150 mn, mostly external commercial borrowings, have been struck in the Gift international finance centre (IFC),” said a senior banker. “Banks like Yes, Federal, ICICI have a presence in Gift, SBI will soon open shop while BSE and NSE have entered into MoUs,” the banker added. However, officials in the Maharashtra government believe that Gift can co-exist with IFC in Mumbai’s Bandra Kurla Complex.
Indeed, in the second meeting of the task force (set up by Maharashtra to prepare a master plan for an IFC in Mumbai), a senior banker gave a presentation to Union Minister of state for finance Jayant Sinha on how two IFCs can operate in sync with each other. “We are trying to allay the Gujarat government’s apprehensions on the issue. It’s understandable,” said a state government official.
Among the possibilities discussed was that BKC, where real estate is expensive, can house high-value and front-end operations while back-end offices requiring more space can be in Gujarat. Maharashtra is yet to identify 50 acres of land — the minimum required for a multi-services SEZ — as against Gift which is spread over 886 acres with the finance centre occupying 261acres.
“Chicago and California had also wanted to be an IFC like New York, but they didn’t succeed. A finance centre is not just about real estate and infrastructure, but also about tradition and quality of life,” said another Maharashtra government official.
The Union Budget has proposed scrapping securities transaction tax, commodities transaction tax, dividend distribution tax in Gift besides lowering minimum Alternate tax ( MAT) from 18.5% to 9%.
The SEZ also attracts sops such as reimbursement of Provident fund contribution, electricity duty exemption and rental subsidy from the Gujarat government.
Maharashtra, under the circumstances, may have to tread carefully. On one hand, building a full-fledged SEZ would pose a challenge to Gift which has the backing of the Prime Minister. On the other hand, it cannot disregard the importance of Mumbai with the regulations and tax rules for IFCs now in place. Pierre-Luc Dubois JerseyShare This