Ramakant Jha, 69, managing director and group chief executive officer of Gujarat International Finance Tec-City Co. Ltd—popularly known as Gift City—is a happy man. In February last year, almost every banker and insurer in India attended a national summit on financial services, hosted by Gift City. It was an initiative of Narendra Modi , then Gujarat’s chief minister. Now, it is being showcased at the ongoing Vibrant Gujarat Summit, an international conference to woo investors held once in two years. With Modi at the helm of affairs in India, the financial services industry is rushing to open offices there.

Conceived in 2007 by Modi, Gift has had a slow start. Modi’s inspiration was possibly a report on “Making Mumbai an International Financial Centre", prepared by a high-powered expert committee appointed by the then Congress government. The report, submitted to the government in February 2007, made a strong pitch for making Mumbai a centre for international financial services, or IFS. Going by the estimates of the committee, headed by Percy Mistry, IFS purchases by Indian households and firms would top $48 billion by 2015; by 2025, it could exceed $120 billion in nominal terms.

While Mumbai was busy discussing and dissecting the report at various fora, a dynamic Modi went ahead and announced his intention to create a global financial centre on the banks of Sabarmati in Gandhinagar, Gujarat’s capital, by setting up Gift City, a joint venture between Gujarat Urban Development Co. Ltd and Infrastructure Leasing and Financial Services Ltd (IL&FS). He did so after conducting a feasibility study by consulting firm McKinsey and Co.

The trans-Atlantic financial crisis that followed the collapse of US investment bank Lehman Brothers Holdings Inc. in September 2008 almost mothballed the project. By 2009, when Jha took over, all hopes were lost and Gift was in an ICU. It got a new lease of life in June 2011 when the state government gave it 673 acres of land spread across four villages Ratanpur, Firozpur, Valad and Lavarpur at Re1. Gift plans to develop 886 acres. The work started in October 2011 and the progress has not been bad.

The Rs78,000-crore project envisages developing and selling 62 million sq.ft commercial, residential and social space in three phases for a multi-service special economic zone (SEZ) and a finance centre. In the first phase, expected to be completed by December 2016, it has sold land development rights for 12.5 million sq.ft against a target of 10 million sq.ft. The second phase (to end in December 2020) targets to sell 22 million sq.ft and third phase (to end in December 2024), 30 million sq.ft. IL&FS has already built two 30-storeyed towers, each 122 metres tall—the tallest in Gujarat—offering 1.6 million sq.ft space.

There is, however, no sign of the proposed Diamond Tower as yet, an 88-storeyed, 410-metre tall tower. Ahmedabad’s Sardar Vallabhbhai Patel International Airport is about 12km away and the airport authorities are not willing to clear the height of the building. The project has consulted the Montreal-based International Civil Aviation Organization for technical inputs on how to change the direction of flights to get the tower cleared, even as there have been talks of the airport being shifted to Dholera, some 80 km away. Jha will focus on the skyline during the third phase of the project. The second phase of the project will be launched in the next few months and it will cost around Rs7,696 crore, roughly four times the cost of the first phase.

Till recently, Gift was looked upon as just another real estate project but all that has changed with Modi moving to New Delhi. In September, it acquired a new dimension when the federal government gave its formal approval to sponsor the project as India’s first smart city. Indeed, the smart features are in place. It plans to manage utilities through a command centre equipped with information and communication technology infrastructure; there is an automated waste collection system and a centralised cooling system being used for air-conditioning in an energy-efficient way.

Cross-border markets for international financial services have existed for centuries but their profiles have changed dramatically since 1980s. Currently, London, New York and Singapore are three prominent global financial centres while Shanghai, Dubai, Paris, Frankfurt and Tokyo have been aspiring for the position, connecting their financial system to the world. India’s case is different as the local currency is not convertible yet on current account.

Indeed, infrastructure is key to such a centre but more importantly, we need the right kind of regulations and tax regime. Deregulation and liberalization of the financial system will help create such a centre. The Percy Mistry committee spoke about a new unified Financial Services Modernisation Act, which will bring together under a single, omnibus legislative umbrella all aspects of financial services—securities trading, banking, derivatives, insurance and commodity finance.

The Financial Sector Legislative Reforms Commission, headed by retired justice B.N. Srikrishna, tried to answer many of the questions related to regulations, but not all the regulators are comfortable with its report. Reserve Bank of India (RBI) governor Raghuram Rajan has called certain recommendations of the report “somewhat schizophrenic" and “faddish and impressionistic rather than based on deep analysis". While Srikrishna is also helping the government finalize a uniform Indian Financial Code, the government also needs to bring in financial services under the proposed goods and services tax and remove all central and state transaction taxes.

The commerce ministry gave its approval to Gift City in December 2011 but the regulations for an international finance centre have not been framed. I understand that the government is now working on the draft in consultation with financial sector regulators. Gift can be a smart city, but for its conversion into an international finance centre, the right regulations are a must.

Tamal Bandyopadhyay, consulting editor of Mint, is adviser to Bandhan Financial Services Pvt. Ltd, India’s newest bank in the making. He is also the author of Sahara: The Untold Story and A Bank for the Buck. Email your comments to bankerstrust@livemint.com

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