Source: The post India must strengthen GIFT City to attract global capital has been created, based on the article “India’s missed financial bet” published in “Businessline ” on 17 September 2025. India must strengthen GIFT City to attract global capital.
UPSC Syllabus Topic: GS Paper 3 -Indian economy.
Context: GIFT City has yet to match Dubai, Singapore, or Hong Kong. Despite incentives, weak linkages, policy volatility, and limited expatriate appeal persist.
For detailed information on GIFT City read this article here
Why has GIFT City underperformed global peers?
- Limited linkages and regulatory drag: Execution is slow, and rules on exemptions, repatriation, and forex clearances shift unpredictably, unlike the stable regimes of Dubai or Singapore.
- Tax complexity and treaty ambiguity: GIFT units get incentives; yet personnel, service providers, and investors face India’s broader tax regime. Ambiguity on treaty usability curbs IFSC adoption.
- Thin ecosystem and weak network effects: Cayman, Luxembourg, and Dubai built dense clusters of law firms, custodians, and trustees. GIFT, with 580 registered entities (2024), still lacks global-name density.
- Talent, lifestyle, and perception gaps: Professionals prefer cosmopolitan cities with global schools, culture, and connectivity. Singapore ranked third among financial centres in 2023. Dubai saw a 62 per cent rise in family office registrations between 2018–2023. Gandhinagar’s limited expatriate infrastructure deters relocation.
What global shifts are changing the playbook?
- Arbitrage is losing power: OECD’s BEPS and the Global Minimum Tax (Pillar Two) reduce pure tax advantages.
- Compliance plus product innovation: Successful hubs now compete on compliance and product innovation.
- India’s comparative strengths:GIFT should highlight India’s access to a $4 trillion economy, strong fintech potential, rupee-denominated offerings, and connectivity with South–South trade.
What are the consequences for India?
- Outbound bias despite inflows: Foreign inflows rise, yet nearly 99 per cent flows outward as firms invest abroad for resources and supply chains.
- Eroding domestic depth: Each year 5,000–8,000 millionaires leave India. Their relocation weakens local capital pools and reduces long-term domestic financial capacity.
- Trust deficit from policy volatility: Frequent shifts in rules on exemptions, repatriation, and forex clearances, along with ambiguity on treaty applicability, undermine credibility and slow scale-up within GIFT City.
What should India do next?
- Anchor capital with lifestyle ecosystems: Capital follows comfort, certainty, and cosmopolitan living: housing, schools, healthcare, safety, entertainment can stem the exodus.
- Reimagine location and design: Look beyond Gandhinagar; build a mega hub in Daman-Diu, Goa, Puducherry, Araku Valley, or Mangaluru.
- Enable a clearer regime: Adopt a transparent mega tax haven framework, stronger treaty networks, and seamless operational ease.
- Move beyond the sandbox: Build an ecosystem where capital feels at home, while pursuing a holistic welfare approach that safeguards both poor and rich.
Question for practice:
Examine the key challenges and possible solutions for India’s GIFT City to emerge as a competitive global financial hub.
