Ahmed­abad has First-mover Ad­van­tage

The Economic Times - - Econ­omy & Com­pa­nies -

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 past 15 years to cre­ate an off­shore fi­nance hub in Mum­bai, ear­lier state gov­ern­ments 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 mil­lion, mostly ex­ter­nal com­mer­cial bor­row­ings, have been struck in the Gift in­ter- na­tional fi­nance cen­tre (IFC). Banks like Yes, Fed­eral, ICICI have a pres­ence in Gift, SBI will soon open shop, while stock ex­changes BSE and NSE have en­tered into MoUs,” said a se­nior banker.

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 fron­tend op­er­a­tions while back­end 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 – while Gift is spread over 886 acres, with the fi­nance cen­tre oc­cu­py­ing 261 acres. “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 and 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 the 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.

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