Guj International Finance Tec City1

Slide 1: Draft - Not for circulation A GIFT FOR GUJARAT & INDIA The huge international financial center planned on India’s west coast will ultimately become a large model city with numerous educated workers. Some international banks are already booking space. By RN Bhaskar Gujarat’s chief minister, Narendra Modi inspects a scale model of the Gujarat International Finance Tec-City [GIFT] at Tagore Hall in Ahmedabad. F ive years ago, few would have imagined that the state of details were unveiled, people began to realize that this project, Gujarat (on the western shores of India) could bounce quaintly christened Gujarat International Finance Tec-city (or GIFT), back as a major destination for global investment. The could become a globally benchmarked International Finance state had just been ravaged by one of the worst com- Center. Moreover, if all goes well, the IFS sector alone could pro- munal carnages – beginning with the torching of two coaches of a duce nine million jobs and contribute an additional US$385 billion train filled with pilgrims. In retaliation, the state experienced some to GDP by 2020. of the worst riots and bloodbaths the country has witnessed. Many The scale and magnitude of this project is best appreciated thought that Gujarat would be regarded as a pariah state. when compared with some of the biggest financial centers around But since then, the state has become more vibrant than most the world. Keep in mind: while the others are already up and going, other states in India. The reasons are a much improved administra- tion, a clearer focus on promoting employment-oriented projects Financial Centers Around the World and the laying down of clearly defined rules for projects that could Shinjuku Lujiazui La Defense London GIFT, further catapult Gujarat into the big leagues. Be it education or pri- Tokyo Shanghai Paris Dockyards First phase* vate ports, private railway lines or even roadways, Gujarat has con- ● Land in acres 395 420 395 259 500 tinued to declare to the rest of India that it intends to be at the fore- ● Built Space in sq mtrs 1,600,000 4,500,000 2,500,000 1,100,000 7,500,000 front of all development – social or economic. Not surprisingly, the ● Green belt in sq mtrs 120,000 363,500 40,000 NA 589,248 latest report released by India’s central bank shows Gujarat ● Height in mtrs 250 450 200 250 400 accounting for almost 25 percent of all private investments made in Source: XXXXXXXXXXXX India during 2006-07. Hence, it did not surprise many when, on June 28 this year, GIFT is still a plan, though much of the groundwork has been done, Gujarat’s chief minister, Narendra Modi, announced to his people and most of the required clearances are already in place. Yet the that the state would soon witness the setting up one of the largest sheer size of Gujarat’s plan is breathtaking. International Finance Service (IFS) centers in the world. That same Equally staggering are further development plans to surround morning, he laid the foundation stone for a 500-acre development Gift with model townships, making GIFT the hub. Land for the sur- project near Gandhinagar, on the banks of the river Sabarmati. rounding region has been earmarked, while the land for GIFT has This is no minor project, for it is slated to become the new already been transferred to the company managing its affairs. Financial Central Business District of the state of Gujarat. As more (continued on page 4) September 2007 • This Sponsored Report was prepared by the Special Projects Department of Institutional Investor and written by RN Bhaskar, a journalist based in Mumbai.

Slide 2: A GIFT FOR GUJARAT & INDIA Draft - Not for circulation area in a Special Economic Zone (SEZ), for which an application to the central government has already been made. Sources within GFCDC say that approval is merely a formality and work on the SEZ (which requires every business operating from this zone to undertake an export obligation) should begin soon. The contract for the city’s master planning has been assigned to ECADI (East China Architectural Design Institute), which was set up in 1952 and has designed many projects in Shanghai and Beijing, including the Beijing Olympics. An Indian entity, Fairwood Consultants Pvt. Ltd., will assist ECADI in this work. The contract for demand assessment and feasibility has been given to McKinsey & Company, and the job for Talent assessment (including identifying and recruiting key talent required for a city of this scale) has been given to Hewitt Associates, one of the world’s An Indian pedestrian walks past a poster advertising the foremost providers of multiservice human resource outsourcing. Gujarat International Finance Tec-City [GIFT] Exposition at Hewitt’s mandate is to find ways to increase Gujarat’s skill pool Tagore Hall in Ahmedabad. and to make more youth employable. Currently Gujarat produces around 150,000 college graduates annually, of which only 15 per- Seldom has such a large and ultramodern city development project cent are usually employable. The state government wants to imple- been taken up so aggressively in India. The joint-venture company ment strategies to increase this employable pool by 50 percent or that will oversee the project has already been formed – Gujarat 60 percent over the next decade. Finance and City Development Company (GFCDC), with Sudhir Construction work is slated to commence this October, and the Mankad as its chairman. The 500 acres for the first phase of this city itself should be humming with activity by May 2010. As part of project have been handed over to GFCDC, thus ensuring that land the first phase, some 75 million square feet of built-up space will acquisition will not cause any delay. be constructed. And significantly, a handful of Indian and foreign Only 250 of the allotted 500 acres will be developed initially. The financial services companies, including banks, have already total project, including the townships, will be developed over the booked around 18 million square feet, or almost a quarter, of the next 20 years, but the project’s core will lie in the first 250 acres. commercial area. GIFT itself has been split into three phases. Obviously, the speed at which work has commenced, and the The first phase will involve building 7.5 million square feet of methodical planning of all the pieces that must be developed space for the Domestic Tariff Area (DTA), which under Indian laws simultaneously, lead to just one conclusion – that the GIFT project is meant for businesses that can cater to rupee-denominated trade could change the financial services map for India, and possibly for and commerce. Opposite the DTA will be the export processing the world, as well. Targeting Financial Services BROADLY SPEAKING, FIVE TYPES OF increase in consumer financing, back-office service products, including capital markets businesses have been targeted in phases: operations for purely domestic business are and trading. However, this may require some also likely to grow exponentially. changes in government policy, as full con- 1. Global Business Process Outsourcing vertibility of India’s current and capital (BPO) hub for financial services: The 3. Global IT hub for financial services: A accounts would be required before these Gujarat government believes GIFT will be the great deal of GIFT’s emphasis is develop- businesses could operate effectively. preferred off-shoring location for global play- ment of IT infrastructure, which could According to GFCDC, the first three oppor- ers in financial services. Currently, some account for almost one-third of the total finan- tunities alone could result in more than four banks have opted for territories located in cial outlay. million jobs by 2020 and would require about Tamil Nadu in South India (Citibank has 800 million square feet of office space all moved its global back-office operations there) 4. Global R&D hub for emerging sectors: over India. GIFT intends to capture a modest or at Gurgaon in North India (where GE has If GIFT attracts top talent, it could become 2.5 percent of this potential. Ancillary and back-office operations through another asso- the preferred R&D center for industry – espe- support services would likely add similar job ciate BPO company). cially for the pharmaceutical sector, where opportunities. Around 150,000 additional Gujarat has a distinct lead. Today, some of white-collar jobs would be created for finan- 2. Operations hub for domestic financial the biggest pharmaceutical players are cial professionals, such as chartered services: The Gujarat state government is already headquartered in Gujarat. accountants, stockbrokers and lawyers. confident that it can make GIFT the central- Another 900,000 indirect jobs are also likely ized hub for midoffice and back-office activi- 5. Financial center for select product mar- to be created because of GIFT as demand ties for domestic financial services. With the kets: GIFT hopes to emerge as an integrat- rises for the skills of electricians, drivers and surge in banking and insurance and a steep ed center dealing with the full set of financial catering personnel, and the like. 4 • Institutional Investor Sponsored Report • September 2007

Slide 3: A GIFT FOR GUJARAT & INDIA Draft - Not for circulation Why Gujarat? started by Gujaratis: Bank of India, State Bank of Saurashtra, Central Bank, Dena Bank – and even one of the first private banks in the new liberalized India, Kotak Bank. Gujaratis also control a great deal of business in many East African countries, own quite a few motel chains in the US and have significant business interests in the UK. as well. Thus it was not surprising that the government of Gujarat and its chief secretary decided to commission a study in the last quarter of 2006 to find out if Gujarat could become the financial services cen- ter for India. The results of the study were favorable – they con- firmed the intuitive belief among most Gujaratis that what IT had done for India could be replicated in financial services, and that Gujarat could be the prime mover in this field. Could the government, therefore, create something that would be at par with the rest of the world? Could it bring back to the state Four million jobs by 2020 are expected to be created because of GIFT. thousands of Gujarati financial professionals now working in coun- tries other than India? ON AUGUST 14, 2007, INDIA’S CENTRAL BANK RELEASED A A subsequent talent search that was then commissioned showed report showing how the state of Gujarat had mopped up Rs731.7 bil- that many Gujaratis would be only too glad to return to their home lion (US$18 billion) of the Rs2,836 billion invested in India during state if it had similar job and growth opportunities in the world of 2006-07. Gujarat thus attracted almost 26 percent of all investments made in the country – and trounced the erstwhile leader, the state of Top 10 Investment Destinations in India* Maharashtra, which accounted for only 8.6 percent of the funds. But avid observers of Gujarat weren’t surprised. And they believe that eco- State No. of Amount Amount % of Investments projects (Rs. crore) (US$ bn) garnered nomic growth in this state will continue to accelerate in coming years. ● Gujarat 86 73,170 17.8 25.8 After all, seldom has a community been as closely identified with the ● Andhra Pradesh 105 25,173 6.1 8.9 development of business and commerce in a country as have the peo- ● Maharashtra 142 24,330 5.9 8.6 ple of Gujarat in India. Commonly referred to as Gujaratis, they have ● Tamil Nadu 157 24,299 5.9 8.6 been at the forefront of almost every financial innovation in the country. ● Karnataka 91 19,930 4.9 7.0 Many people note that the state of Maharashtra remained India’s ● Orissa 23 14,806 3.6 5.2 industrial leader for several decades because Gujarat was part of the ● Uttar Pradesh 60 9,836 2.4 3.5 undivided Bombay Province under British rule and part of Greater ● Rajasthan 38 9,806 2.4 3.5 Maharashtra for more than a decade after independence. Only when ● Jharkhand 13 7,174 1.7 2.5 the state was bifurcated along linguistic lines into Maharashtra and ● Delhi 19 6,359 1.6 2.2 Gujarat in 1961 did the latter begin to catch up with Maharashtra, ● Total 1,054 283,605 69.2 100 where most Gujaratis had set up their businesses in the past. Last year, Gujarat finally caught and surpassed Maharashtra. Source: RBI *2006-2007 The contribution of the Gujaratis to nation-building can be appreciat- ed from the fact that they set up the country’s first cotton exchange finance. Moreover, given that the demand for international financial more than 200 years ago and the country’s first stock market (the services (IFS) is bound to rise with any increase in cross-border Bombay Stock Exchange) more than 130 years ago, and they continue flows, various services could be established in the International to account for a significant portion of the both stockbroking and the Finance Service Center (IFSC) of GIFT as outlined under the provi- commodity exchange fraternity. Some of India’s leading banks were sions of India’s SEZ Act of 2005. This would include asset manage- ment, global portfolio diversification, global tax management, global Gujarat: A Snapshot and regional risk management, and so on. So the government drew on the best lawyers, planners and Gujarat All-India financial experts from January to June this year to conceptualize a ● Area (‘000 sq km) 196 3,287 finance and technology city – acronymed GIFT – and set up ● Population (millions) 50.67 1,028.61 Gujarat Finance and City Development Company (GFCDC) to ● Population growth (%) 22.7 21.5 translate this dream into a reality. Four board meetings later, the ● Rural population (millions) 31.7 742.7 government transferred all the development rights relating to 500 ● Urban population 19.0 286.0 acres of land to GFCDC (besides committing itself to granting the ● Females per 1000 males 920 933 company additional land for further development needs) and ● Literacy levels (%) 69.1 64.8 authorized it to move quickly. ● Percent of workers to total population 3.6 30.4 In less than two months, the GFCDC appointed ECADI as its key ● Percent of agricultural workers to total population 51.6 58.2 planner and executor. Other contracts followed. And the state awaits Source: Census of India, 2001, Government of India *Data based on 2001 census. its GIFT. 6 • Institutional Investor Sponsored Report • September 2007

Slide 4: A GIFT FOR GUJARAT & INDIA Draft - Not for circulation Investment Inviting Partners Outlay SETTING UP A PROJECT AS big as GIFT will not be a simple Distribution: environmentally compliant – preferably through Plant capacity of 60 tons per day in Phase 1. This module will include a job. Even while the first stages of the use of gas as a fuel – power separate sewage treatment plant. GUJARAT INTERNATIONAL construction get under way, Gujarat generation (of up to 800MW); Finance Tec-city (GIFT) is likely Finance & City Development use of renewable energy 7. Landscaping: To include to involve an investment outlay of Company (GFCDC) has already sources, including wind and parks/gardens, hard landscape and approximately US$14 billion. The begun to seek out three kinds of solar; innovative district cooling water bodies. price tag would have been a lot partners: syste; electrical system design higher if the cost of land had The first are the planners and for buildings; and use of ecologi- 8. Transport: Internal and external been included. However, as all conceptualizers, and the key play- cally sound building materials. connectivity will involve a multi- development rights have been ers are already in place. McKinsey modal mix of transport systems for transferred to Gujarat Finance & & Co. has been appointed to do the 4. Water: A comprehensive water both intracity interregion City Development Company demand assessment. East China management plan. Various recy- (Ahmedabad airport, Gandhinagar (GFCDC), the costs have turned Architectural Design Institute cling methods and rainwater har- and the City) and a walk-to-work out to be much lower. (ECADI) has been appointed mas- vesting would make GIFT self-sus- concept as part of urban planning. The project will be divided into ter planner. And Hewitt Associates tainable in terms of water. The tar- Use of electric Personnel Rapid two parts. One is the Domestic has been assigned the job of doing get is to make GIFT a zero-dis- transport systems within the city; Tariff Area (DTA), accounting for manpower and human resource charge city. Components include Ahmedabad-airport to GIFT-city will 250 acres, and the other is a estimation and planning. management of external water have a dedicated expressway. Special Economic Zone (SEZ), Now, with the project moving bodies, sewage and drainage, Other components will incude city for which the Gujarat Finance along, a search is on for the sec- storm-water drainage, river training, roads, river tunnels, bridges, exter- and City Development Company ond group of partners, which will water supply and distribution. nal roads and transportation nodes. (GFCDC) has applied to the gov- be joint investors along with ernment for formal approval. GFCDC and which will take up a 5. District cooling: Chilled water 9. Domestic gas systems: The DTA part of GIFT will have variety of contracts. Notable systems to meet the cooling Aimed at meeting the domestic the following: among them are the following: requirements of the city. The requirements of the households. • Domestic financial district plant will be located next to the Each of the above segments will • Domestic techno park 1. Building and construction of power plant to make use of be turned over to the private sector • Fin/tech services (Export ori- the “built-up-area,” aggregating 25 waste heat recovery from power after specifications are detailed. ented undertakings) park million sq. ft. in the first phase. generation. This would result in Special purpose vehicles (SPVs) • Domestic markets zone at least 30 percent savings in will be formed for each. The foreign • Domestic utilities 2. ICT (see section below) power consumption. partner will own up to 74 percent of The SEZ part of the project is to the SPV’s equity, with GFCDC be further divided into the pro- 3. Power Generation and 6. Solid waste management: owning around 26 percent. cessing and the nonprocessing areas. The processing areas of the SEZ Internet and Communications Technology would include • International Financial Service THE MANAGEMENT OF GIFT CITY IS INCLINED TO BELIEVE THAT THE MAJOR Centre (IFSC) differentiating factor (aside from the entire package of facilities and lifestyle offerings) will be its invest- • International Techno Park ments in Internet and communications technology (ICT) – its state-of-the-art wired infrastructure • STPI Units – Technology (STPI backed by high-leveraging of communication technology. Almost one-third of the project’s cost will being an acronym for Software likely go for ICT alone. Technology Parks of India) The focus of ICT will be “utility-on-demand” offerings on ubiquitous next-generation networks. The • International Market Zone city envisions ICT not easily available in India today – bandwidth on demand, computing on demand, • Exchanges, Service Units secured data center services, intelligent buildings, managed network services, and efficient city ICT • International Education Zone governance. The nonprocessing areas of the Key benefits for the city’s population will include: SEZ would have the following • Access to high-speed networks with seamless voice, video and data integration and use of • Utilities advanced end-user applications. • Integrated townships • Faster setting up of businesses – with plug-and-play services that let organizations spend more • Entertainment zone time on customer business services, rather than on setting up infrastructure services. • Hotel/convention centre • Secure and resilient networks with disaster-ready data center operations. • Shopping malls • Availability of high bandwidth at reasonable cost, which ought to lead to innovative services not • Health services even anticipated at this stage. • Schooling • Availability of customized residential services (e.g. IPTV, video on demand and online gaming). 8 • Institutional Investor Sponsored Report • September 2007