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The Abu Dhabi Investment Authority (ADIA), the largest sovereign wealth fund in the United Arab Emirates (UAE), is reportedly establishing a fund ranging from USD 4 to USD 5 billion to invest in India. This initiative will be facilitated through a tax-neutral finance hub located in the state of Gujarat, the GIFT City. The regulatory authority for financial services at Gujarat International Finance Tec-City (GIFT City) has granted in-principle approval for ADIA to set up the fund.
ADIA's intention to establish a presence in GIFT City was initially announced in a joint statement by India and the UAE in July last year. This approval positions ADIA as the first sovereign wealth fund to embark on investments in India through GIFT City. The timing is notable as it precedes Prime Minister Modi's upcoming visit to Abu Dhabi, where he is scheduled to inaugurate a significant temple.
ADIA is anticipated to commence investing through the established fund by the middle of the current year, allocating funds gradually over time. The bilateral trade between India and the UAE reached USD 85 billion for the fiscal year ending in March 2023, according to Indian government data.
GIFT City enables funds to invest in Indian and foreign equities, debt securities, and various other assets. The government has recently taken measures to stimulate activity in GIFT City, including permitting unlisted Indian firms to directly list shares on exchanges there. Finance Minister Nirmala Sitharaman, during the announcement of the federal budget, expressed the government's objective to develop GIFT City as a "gateway for global capital and financial services for the economy."
The region provides a 10-year tax holiday for companies setting up operations, exemption from taxes on fund transfers from overseas jurisdictions, and proximity to Indian markets. ADIA and its subsidiaries have been granted a specific exemption from long-term capital gains taxes on Indian investments through a special provision valid until March 2025.
The fund management activities in GIFT City have gained momentum after a slow start, with 95 local and global funds having commitments of USD 30 billion and investments exceeding USD 2.93 billion as of December 2023. The International Financial Services Authority (IFSCA) is reportedly in the early stages of discussions with other sovereign wealth funds to establish operations in GIFT City.
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