GIFT City: India’s Financial Dream Deferred?

India needs to make a strategic choice: does it really want GIFT City to compete with Singapore or Dubai, or is it content with a symbolic domestic sandbox?

By P. SESH KUMAR

NEW DELHI, June 19, 2025 – Gujarat International Finance Tec-City, popularly known as GIFT City, was envisioned as India’s flagship international financial hub—a domestic alternative to offshore financial centres like Singapore, Mauritius, and the Cayman Islands. Its promise was grand: cutting-edge infrastructure, regulatory innovation, and a tax-friendly ecosystem to attract global capital. Over a decade since its conceptualization, however, GIFT City remains more aspiration than accomplishment.

A Financial Oasis in the Making

When GIFT City was launched in 2015 under the aegis of Prime Minister Narendra Modi—then Gujarat’s Chief Minister—it was meant to be India’s answer to Dubai, Singapore, and London. It was touted as a “smart city” that would house an International Financial Services Centre (IFSC), operating under globally benchmarked rules, outside the shackles of domestic regulatory overreach. The idea was straightforward but bold: Why should Indian capital fly out to tax havens or international financial jurisdictions when the same advantages could be recreated on Indian soil?

The new jurisdiction would boast of a single unified regulator—the International Financial Services Centres Authority (IFSCA)—independent from RBI, SEBI, IRDAI, or PFRDA but coordinating with all of them. It would offer liberalized currency convertibility, zero capital gains tax on certain instruments, exemptions from stamp duty, and a fast-track regulatory regime for fintech, fund management, and insurance.

On paper, it was a dream proposition. In practice, it’s been more of a bureaucratic chessboard.

A Modest Scorecard So Far

The number of funds operating in GIFT IFSC has grown steadily. As of March 2025, it housed 229 funds, signalling a growing interest. However, this statistic conceals a more sobering reality: only 13 of these funds may have actually migrated from foreign jurisdictions like Mauritius, Singapore, or the Cayman Islands. Notable among them are the Mirae Asset India Midcap Equity Fund and Artha Global Opportunities Fund. The latter, which invests in distressed Indian assets, proudly claimed to be the first to shift its base from Mauritius to GIFT. Yet this kind of voluntary migration is rare, slow, and laden with burdens.

Much of the activity in GIFT today is greenfield—new funds being set up from scratch—rather than actual repatriation of offshore capital. The existing, well-established funds see little financial or operational rationale to uproot and move.

Compliance Overload and the Substance Roadblock

One of GIFT City’s biggest challenges is its insistence on ‘substance’—that is, requiring fund management entities to establish actual operational presence with dedicated staff in the IFSC. Category I, II, and III Alternative Investment Funds (AIFs) are required to have at least two resident employees: a principal officer and a compliance officer. Retail funds need three, and large managers with over $1 billion in assets must appoint a third officer. Compare this with Mauritius, where directors can be provided by fund administrators and often serve multiple entities simultaneously, or Singapore, where hiring rules are more flexible and based on fund size. In short, GIFT’s substance requirements feel excessive and inflexible.

Moreover, older funds—especially close-ended ones with finite lifespans—see little benefit in relocating for the last few years of their operations, especially given the red tape involved.

Taxation Twists and the Compliance Burden

For a jurisdiction that claims to be tax-efficient, GIFT City is surprisingly tax-complicated. Investors in Category-I/II funds are eligible for tax credit as GIFT funds are considered “tax-transparent.” But the same benefit doesn’t hold for Category-III AIFs, where tax credit for the investor depends on the domestic tax laws of their home country. Compare this again with Mauritius, where funds pay tax and distributions to investors are exempt—straightforward and attractive.

Fund managers also complain of the sheer number of compliance obligations they face post-relocation: GST registration, monthly filings, TDS deductions, income tax submissions—even when the fund generates passive income and provides no services or products. Foreign vendor payments from GIFT attract withholding taxes which would typically be exempt in other global jurisdictions. It’s not just a case of minor friction—it is regulatory sand in the gears.

Regulatory Coordination: A Tug of War

GIFT City’s grand vision was to be a one-stop jurisdiction under IFSCA. But the real world doesn’t conform neatly to bureaucratic diagrams. Even though IFSCA is the statutory regulator for GIFT, coordination with other bodies like RBI, SEBI, and IRDA continues to be a grey zone.

Take currency management or financial product approvals—RBI still casts a long shadow. For market instruments, SEBI’s legacy regulations often creep in. Insurance activities may still be shaped by IRDAI’s overarching rules. This creates a turf war-like situation, or at best, regulatory overlap that deters innovation.

Meanwhile, while the Ministry of Finance has backed the project publicly, insiders claim that inter-departmental support is tepid and fragmented. Bureaucratic caution, inertia, and a legacy mindset often dilute the boldness that a global financial hub requires. As one fund manager quipped, “You can’t be globally competitive if you’re still trying to fit the camel of global finance through the needle of Indian compliance.”

A Real-World Parallel

Consider the case of Artha Bharat Investment Managers IFSC LLP. After relocating its fund from Mauritius, the team is understood to have found itself entangled in domestic regulations it never expected. Passive income suddenly invited TDS obligations. Foreign vendors became taxable transactions. Monthly GST returns were required even though the fund neither sold products nor provided services. Instead of unleashing efficiency, relocation bred regulatory fatigue.

Such cases serve as cautionary tales for other fund managers on the fence about moving to GIFT.

Following are some specific case studies and examples of red tape and regulatory inconveniences stated to have been faced by intended beneficiaries in GIFT City.

Case Study 1: Artha Global Opportunities Fund — The Mauritius-to-GIFT Migration That Became a Tax Maze

In December 2023, the Artha Global Opportunities Fund, which specializes in distressed assets and was previously domiciled in Mauritius, became one of the very first foreign funds to relocate to GIFT City. The move, hailed initially as a landmark event, turned out to be a bureaucratic slog.

The managing partner of its Indian entity, Artha Bharat Investment Managers IFSC LLP, shared his frustrations publicly:

Once the fund shifted, it faced a pile-on of domestic compliance rules, despite being a passive investment vehicle. These included:

• Monthly GST Returns: Even though the fund was not engaged in supplying goods or services, the GST regime still required monthly filings—an absurdity for a vehicle that only received capital inflows and made equity investments.
• Withholding Tax on Payments to Foreign Vendors: The fund engaged certain overseas service providers. In Mauritius or Cayman Islands, such payments would not attract tax, but in GIFT City, withholding tax was mandatory—adding avoidable friction and administrative burden.
• Investor Reporting & TDS: The fund had to deduct Tax Deducted at Source (TDS) on distributed income—even when the fund’s investors were not based in India. In contrast, Mauritius’ framework allowed the fund to pay tax centrally with no downstream TDS filings.

Result? A team that expected greater efficiency found itself allocating more staff and legal resources to navigate compliance, defeating the cost-saving rationale for shifting.

Case Study 2: Mirae Asset India Midcap Fund — Substance Rule Tripwires

Mirae Asset was among the very few funds that moved operations from a foreign jurisdiction to GIFT IFSC. Theoretically, this should have been smooth, but a regulatory landmine awaited.

Under IFSCA’s substance requirements, non-retail AIFs are required to maintain a physical presence of at least two senior employees in the IFSC: a principal officer and a compliance officer. If managing more than $1 billion in assets, a third officer is mandated.

While international fund hubs like Mauritius and the Cayman Islands allow nominee directors or shared officers (provided by fund administrators), GIFT insists on full-time, exclusive hires—within the City.

For Mirae, this meant either:

• Relocating high-value employees to Gandhinagar from Mumbai or Singapore (an unattractive option), or
• Hiring locally from a limited talent pool, which is risky and raises cost for a regulated function.

This may have made even large players pause. Several fund managers appear to have indicated that, unlike Singapore where flexible hiring thresholds apply depending on AUM levels, GIFT’s one-size-fits-all model was both inflexible and misaligned with global practices.

Case Study 3: Alchemy India Long-Term Fund — Migration Friction and Jurisdictional Conflicts

Alchemy India Long-Term Fund did migrate to GIFT City, but the process took longer than expected due to regulatory coordination gaps. The fund, initially domiciled in a jurisdiction with light-touch regulations (Mauritius), faced three layers of approval for shifting:

1. Investor Re-Consent: As required by global fiduciary norms, all investors had to approve the redomiciling of the fund, which involved complex documentation, legal clearance, and added cost.
2. Home Jurisdiction Exit Procedures: Mauritius regulators had to approve the fund’s deregistration and ensure no tax or legal liabilities were pending.
3. IFSCA and Domestic Clearance: GIFT’s regulator, along with other involved Indian authorities (Income Tax, RBI if foreign remittances were involved), had to clear the move—often with redundant paperwork and contradictory interpretations.

Insiders revealed that what could have been done in 60 days took over 9 months, turning GIFT’s much-vaunted “fast-track” process into a bureaucratic detour.

Example 4: Foreign Portfolio Investors (FPIs) — Confusion Over Dual Taxation and Regulatory Arbitrage

A number of FPIs contemplating redomiciling into GIFT City appear to have held back due to lack of clarity on how Indian tax authorities will treat past gains and future distributions. There’s widespread confusion over:

• Whether carry-forward capital losses from previous jurisdictions would be recognized.
• How exit taxes would be applied when shifting jurisdiction.
• Whether double taxation avoidance agreements (DTAAs) would still protect investors once the fund became Indian-domiciled.

In contrast, offshore centres like Luxembourg or Singapore offer clear tax treatment guidelines and seamless DTAA protection, making them a safer bet for global investors.

Example 5: Fintech Entities and Innovation Sandbox — Licensing Bottlenecks

GIFT City has a fintech innovation sandbox, but fintech firms complain of slow turnaround times for license approvals and innovation testing.

One notable example is a blockchain-based cross-border payment startup that applied for a sandbox license in 2022. It took over 11 months to get clarity on permissible activities, during which the startup pivoted to Singapore’s MAS-regulated sandbox, where it got provisional approval in just 8 weeks.

The firm later exited GIFT City altogether, citing regulatory opacity and lack of handholding support from IFSCA.

These examples illustrate a repeating pattern—well-meaning policy neutralized by bureaucratic inertia or legacy compliance norms. Whether it’s excessive substance requirements, GST filings for passive funds, or slow migration approvals, the result is the same: global investors and managers lose interest. What was intended as a sleek global financial runway is still more of a pothole-ridden tarmac.

The Way Forward: From Labyrinth to Launchpad

India needs to make a strategic choice: does it really want GIFT City to compete with Singapore or Dubai, or is it content with a symbolic domestic sandbox?

If the former, then radical rethinking is needed. First, simplify the compliance and tax ecosystem, especially for passive income funds. Rationalize withholding taxes, exempt pure-play financial instruments from GST, and offer tax certainty for foreign investors. Second, liberalize substance rules—perhaps allow phased staffing models or outsourced compliance functions, especially for small and mid-sized funds.

Third, fast-track dispute resolution, streamline regulatory clearances, and establish dedicated investor desks across countries to guide fund migrations. Finally, build real-time coordination mechanisms between IFSCA and other regulators under a finance ministry-led steering group.

The Case for a CAG Performance Audit: Time for a Reality Check

For all the strategic importance attached to GIFT City, what’s missing is an independent, institutional stock-taking. This is where the Comptroller and Auditor General (CAG) of India must step in—not with a magnifying glass to nitpick accounting entries, but with the telescope of a performance auditor asking the larger question: has GIFT delivered on its grand promises?

A performance audit by the CAG would be invaluable in cutting through the rhetoric and examining, objectively, the outcomes against original intentions. Such an audit would evaluate whether GIFT has succeeded in repatriating offshore capital, whether it has become a magnet for global fund managers, whether fintech innovation is thriving as envisioned, and whether the promised regulatory simplicity and tax advantages are real or notional. It would track the timelines of license approvals, assess investor satisfaction, review regulatory coordination (or the lack thereof), and most crucially, identify where exactly the implementation gaps lie—in law, in tax policy, or in bureaucratic turf wars.

The CAG’s audit could also benchmark GIFT against peer international financial centres—like Singapore’s MAS-regulated sandbox, the Cayman model of tax simplicity, or Dubai’s DIFC framework—to identify what India must unlearn and relearn. Furthermore, such a review would not just hold project implementers accountable, but could also provide forward-looking policy advice to reboot the IFSC initiative in a globally competitive direction.

Practical remedies could be embedded into the audit’s recommendations: eliminating dual tax uncertainties, easing substance requirements through tiered staffing models, fast-tracking innovation licenses within predefined timelines, and creating an empowered GIFT migration desk in coordination with CBDT, SEBI, and RBI to cut the bureaucratic clutter.

After all, when the government commits prime real estate, tax waivers, and legislative innovation to a project of this scale, citizens and taxpayers deserve to know: is the dream of a financial India being delivered—or deferred behind polished PowerPoint presentations and empty dashboards?

A Dream Still Worth Fighting For

GIFT City is not a failed idea—it is a good idea stuck in a bad implementation loop. It embodies India’s desire to reclaim financial sovereignty and attract global capital on Indian soil. But the ecosystem must evolve from red tape to red carpet. The road ahead is difficult, but not impossible—if policymakers are willing to listen, simplify, and lead with courage.

Because in the end, no fund manager ever said: “I chose a jurisdiction for its paperwork.” They go where clarity, certainty, and capital freedom lead them. GIFT City must learn to speak that language.

(This is an opinion piece; views expressed solely belong to the author, who served as DG in the CAG)

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