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ADIA’s $5 Billion Power Play in India’s Financial Epicenter – What’s at Stake in Modi’s Home State?

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The Abu Dhabi Investment Authority (ADIA), the largest sovereign wealth fund in the United Arab Emirates (UAE), is poised to establish a significant investment fund worth $4-5 billion through India’s emerging financial center located in Prime Minister Narendra Modi’s home state of Gujarat. Sources familiar with the matter revealed this exclusive information, shedding light on ADIA’s strategic move into the Indian market.

Under the umbrella of the Gujarat International Finance Tec-City (GIFT City), ADIA has secured in-principle approval from the regulatory authority overseeing financial services in the hub. While the details of ADIA’s investment plans have been kept confidential, this development marks a significant milestone in India’s financial landscape.

The decision to set up operations in GIFT City was initially disclosed in a joint statement by India and the UAE last July, underscoring the growing economic collaboration between the two nations. However, the specifics of ADIA’s investment magnitude and the regulatory greenlight have not been previously disclosed to the public.

Representatives from ADIA declined to comment on the matter, while inquiries to the International Financial Services Authority (IFSCA), responsible for regulating financial activities in GIFT City, went unanswered.

ADIA’s entry into GIFT City positions it as the pioneering sovereign wealth fund to channel investments into India through this burgeoning financial hub. This strategic move comes just ahead of Prime Minister Modi’s scheduled visit to Abu Dhabi to inaugurate a significant temple, reinforcing the diplomatic and economic relations between India and the UAE.

Over the past decade, Prime Minister Modi has actively cultivated ties with the UAE, making six official visits to the country and strengthening bilateral trade relations. Trade volumes between India and the UAE reached $85 billion for the financial year ending March 2023, solidifying the UAE’s status as India’s third-largest trading partner.

Moreover, the UAE is home to a sizable Indian expatriate community, with approximately 3.5 million Indians residing in the country, constituting nearly 35% of the UAE’s total population. Sources familiar with ADIA’s plans indicated that the investment fund could commence operations by mid-year, with allocated funds earmarked for investment opportunities in India over a specified period.

GIFT City offers a conducive environment for fund management activities, enabling investments in both Indian and foreign equities, debt securities, and other asset classes. Modi’s government has actively sought to enhance the attractiveness of GIFT City, including facilitating direct listings for unlisted Indian firms on exchanges within the hub.

Finance Minister Nirmala Sitharaman, in her recent budget announcement, reiterated the government’s commitment to bolstering GIFT City’s role as a global financial gateway for capital and financial services. The financial zone boasts several incentives, including a 10-year tax holiday for companies, tax exemptions on fund transfers from overseas, and proximity to Indian markets. Notably, ADIA and its subsidiaries have been granted special provisions exempting them from long-term capital gains taxes on Indian investments until March 2025.

Despite a modest start, GIFT City has witnessed a surge in fund management activities, with 95 local and global funds registered as of December 2023, reflecting commitments exceeding $30 billion and investments surpassing $2.93 billion. According to sources, IFSCA is actively engaged in discussions with other sovereign wealth funds to establish their presence in GIFT City, indicating growing interest and momentum within the financial ecosystem of India’s premier financial hub.

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