Other BriefingsWhere to Locate Your Investment in Ahmedabad District, Gujarat
We profile the district of Ahmedabad in the western state of Gujarat and illustrate the reasons why it features consistently among India’s top investment destinations for industry, ITeS, logistics, and increasingly, fintech. The state recently unveiled its IT/ITeS Policy, 2022-27 and the Finance Bill, 2022 has proposed further tax incentives for the IFSC at GIFT City.
Ahmedabad is the financial capital of the state of Gujarat and among the fastest growing cities in India. It is home to more than seven million people, making it the fifth most populous and the seventh largest city in the country. Historically, it has been an important hub for trade, commerce, and culture. Today, Ahmedabad is the nucleus of the Gujarat industrial region, and is a base for some of the biggest industrial names as well as several commercial and educational institutions of national, regional, and global importance.
Historical brief
Founded in the 15th century as a walled city, Ahmedabad quickly became a royal capital for the Sultanate of Gujarat. In the first half of the 20th century, Ahmedabad was at the forefront of the Indian independence movement, with multiple campaigns and political movements; the city would also serve as capital of Gujarat from 1960 to 1970. Although the state capital was later shifted to Gandhinagar, Ahmedabad has retained its prominence in western India.
Location
Located on the banks of the Sabarmati River in northeast Gujarat, Ahmedabad holds a strategic location in the trade and logistics network in western India. The city lies in the middle of the Delhi-Mumbai industrial corridor and has a strong rail and road connection to the rest of the country. The region has a tropical climate, which is dry except in the rainy season, providing an ideal climate for its renowned cotton textile industry. The average annual rainfall of the area is 782 mm, although there is a considerable variation from year to year.
Economy overview
Ahmedabad is the largest contributor to the GDP of Gujarat. With an estimated share of US$68 billion out of US$227 billion in 2019, the city has seen an upward scaling economy, growing at an average growth rate of 13.5 percent (before the pandemic). The value addition in the city is led by its industrial capacity – Ahmedabad is a major base for the pharmaceutical sector and a developing textile sector. Overall, the city houses a diverse labor force of traders, students, and migrant workers – serving as an attractive location for multinational corporations as well as medium and small scale (MSME) businesses.
Investment opportunities
Ahmedabad District is the largest inland industrial center in western India. It provides a manufacturing base for industries like chemical, textiles, agriculture, and food processing. The GDP of Ahmedabad and Gujarat depend heavily on the output and capacity of these industries. Below we highlight major industries in the city.
Drugs and pharmaceuticals
Ahmedabad is one of the key pharmaceutical clusters in India. Two of the biggest Indian pharmaceutical companies – Zydus Cadila and Torrent Pharmaceuticals – are headquartered in the city. The former is a leading manufacturer of generic drugs and the latter is active in pharma drugs treating the central nervous system (CNS), gastro-intestinal system, diabetology, cardiovascular system, etc.
Other key players present in the region include Eris Lifesciences Ltd, Intas Pharmaceuticals Ltd, Aculife Healthcare Pvt Ltd, Lincoln Pharmaceuticals Ltd. Their manufacturing focus range from drugs to treat lifestyle related disorders, biosimilar products, injectables, and disposable medical devices to R&D centers for quality enhancement, process development, and product development. India holds an important position in the global pharmaceuticals supply chain, and Gujarat represents close to a third of all Indian pharmaceutical production.
While the proximity of raw materials along with the availability of cheap land and cheap skilled labor has established the district as an alluring spot for pharmaceutical opportunities, the government is also dedicated to fostering enduring competitive advantages.
The state government has reduced the number of regulations industry has to comply. In 2017, the Food and Drugs Control Administration (FDCA) reduced the timeline for the granting of manufacturing licenses from 60 days from 120 days. This has resulted in companies looking to relocate their manufacturing plants. The government has also proposed the funding of construction of common facilities like warehouses and testing labs to help manufacturers reduce costs and increase competitiveness. In addition to these facilities, the government also permits 100 percent FDI in greenfield pharmaceutical projects and 74 percent FDI in brownfield projects.
India’s domestic market is estimated to grow three times in the next decade, according to the Indian Economic Survey 2021. Furthermore, medicine spending in the country is projected to grow 9-12 percent over the next five years. Consequently, in June 2021, Finance Minister Nirmala Sitharaman announced an additional outlay of US$26.5 billion for the pharmaceutical industry’s Production Linked Incentive scheme in key segments. The growth in consumer spending owing to the increasing demand for quality healthcare have resulted in a steady flow of investments in the pharma and healthcare sector in Gujarat, encouraging prospects for the industry’s backward and forward linkages.
Textiles
Textiles in Ahmedabad is one of its oldest industries, dating back centuries. Nicknamed ‘The Manchester of East’, the region benefits from ideal weather and soil conditions for the cultivation of cotton. In 1861, one of the first Indian textile mills, the Ahmedabad Spinning and Weaving Company Limited, was founded. Since then, the district has seen the establishment of several textile houses, such as the Arvind Ltd, one of the largest textile mills in the country today and a pioneer of denim. Other key names include Soma Textiles and Industries Ltd, Aarvee Denims, and Jindal Worldwide Ltd.
While the climatic advantages are a big strength of the area, its textiles industrial capacity is also supplemented by the R&D and educational institutions present here. The Ahmedabad Textile Industrial Research Association (ATIRA), Apparel and Leather Techniques (ALT) Training College, and Ahmedabad National Institute of Design (NID) contribute to the labor training and innovation for efficient production.
In September 2012, the Gujarat government announced the Gujarat Textile Policy-2012, laying down an approach to transform the cotton industry as a leader in manufacturing. The scheme stressed on the development of infrastructure and human resource, to assist the industry in becoming more efficient and competitive. In 2019, the latest update of the scheme provides subsidies and concessions for the expansion and modernization projects across the textile value chain, while also aiding in acquisition and upgradation. In 2017, the state came out with a dedicated policy ‘Gujarat Garment and Apparel Policy 2017’, aiming to support the garments and apparels segment of the value chain. Key features include power subsidy, payroll assistance, skill development and training.
The policy framework combined with the preparation of textile parks and economic zones, is a clear testament to the commitment of the authorities to enhance the industry potential. The industry is expected to undergo a technological transformation in line with the country’s aim to modernize the sector, and Ahmedabad it seems is prepared for it.
IT/ITeS and fintech
New IT/ITeS policy
On February 8, 2022, the Gujarat government announced the IT/ITeS Policy 2022-27, following up on the previous five-year policy from 2016-21. See here to access the policy documents on the Gujarat state government portal. Key goals of this five-year policy update include increasing export targets from INR 30 billion to INR 250 billion and creating 100,000 jobs and an upskilled IT talent pool. Financial incentives worth up to INR 2 billion will be provided over the five-year period to enterprises that incur capital expenditure as the policy follows a capital/operational expenditure (CAPEX/OPEX) model. R&D areas pushed by the Gujarat government under the 2022-27 IT/ITeS Policy cover components of the cloud ecosystem, AI, machine learning, blockchain, emerging technologies, etc. Special provisions exist for mega scale projects.
Gujarat has also emphasized the crucial role played by small and medium technology businesses, with their high degree of technological influence (start-ups) and opportunities in social, mobility, analytics, and cloud (SMAC) segments.
IFSC at GIFT City
The Gujarat government has worked to establish the Ahmedabad-Gandhinagar stretch as a fintech-city called the ‘Gujarat International Finance Tec-City’ or GIFT city – India’s first international financial services center (IFSC). Proposals in the 2022 Finance Bill (Union Budget 2022-23) include setting up world-class universities and an international arbitration center besides tax incentives to encourage portfolio management and ship leasing.
The project is currently under development and has attracted the attention of some of the biggest names in the IT/IT-enabled services sector. Finance and IT giants like State Bank of India, World Trade Centers Association, BSE Brokers Forum, and the Life Insurance Corporation of India, among others, have already established office spaces here.
Power and renewable energy
Another promising industry taking shape in the Ahmedabad District is the power and renewable energy industry. India’s top 500 companies like Adani Green Energy Ltd, Torrent Power Ltd, and Adani Transmission Ltd have their head offices in the district.
India’s renewable energy sector offers one of the most attractive markets in the world, and the state of Gujarat is expected to become a global hub for renewable energy. It is also a recipient of major renewable energy investments from conglomerates like Reliance and Adani.
Overall, Gujarat’s energy and petrochemical department aims for a surge of renewable power generation capacity from 13,152 MW in 2021 to over 61,000 MW in 2030. The state hopes to achieve this target through projects relating to electricity generation and equipment manufacturing backed by policy initiatives and investor support.
In Ahmedabad District, the state is working on a solar energy park at Dholera called the Dholera Solar Park. The project is a 5GW project being developed in two phases through a public-private partnership (PPP). The companies involved include Gujarat Power Corporation (GPCL), Gujarat Electric Transmission Corporation (GETCO), Solar Energy Corporation (SECI), and Power Grid Corporation of India (POWERGRID). The first 1GW-phase is being developed with an investment of US$695 million by GPCL, while the second 4GW-phase will be developed by SECI with an estimated investment of US$2.7 billion.
Adani group, headquartered in Ahmedabad, is the largest solar cell and module manufacturer in the country, with plans to scale up manufacturing to more than twice the current capacity.
Gujarat leads Indian states in FDI
India received a total FDI of US$ 81.72 billion in 2020-21, out of which Gujarat attracted FDI worth US$30.23 billion, retaining its position as the state attracting the highest FDI for the fourth consecutive year.
An estimated 94 percent of this FDI was received in the computer hardware and software sector, accounting for 78 percent of the country’s total FDI received in this sector.
The state is an attractive investment hotspot owing to the industry-friendly policymaking and capital expenditure by the government.
Infrastructure and logistics
DMIC: Delhi-Mumbai Industrial Corridor
The Delhi-Mumbai Industrial Corridor (DMIC) is a Government of India undertaking and a US$90 billion mega infra-structure project covering an overall length of 1483 km between Delhi and Mumbai. India is building a Multi-Modal High Axle Load Dedicated Freight Corridor (DFC) that passes through six states, including Gujarat. The area on either side of the DFC – constituting 150 km – is being developed as the Delhi-Mumbai Industrial Corridor (DMIC).
The distribution of the corridor shows that Gujarat constitutes 38 percent of the total length of the alignment of freight corridor. The Ahmedabad-Dholera industrial area lies within 100 km of the DFC in the Ahmedabad District and has been identified by the government of Gujarat for developing a Special Investment Region.
Special investment hubs and economic zones in Ahmedabad
Dholera Special Investment Region (DSIR)
The Dholera Special Investment Region is an infrastructure project by the government of Gujarat under the Gujarat Special Investment Region Act 2009, to create a global hub for economic activity – comprising large size investment regions and industrial areas supported by world class infrastructure. The project is currently under construction and expected to be developed by 2030.
Dholera SIR possesses various advantages – proximity to the Gujarat coastline, a solar energy park project in the region, reliable water supply, and airport connectivity. Slated to be bigger than Singapore, it covers an estimated 920 square kilometers, encompassing 22 villages of the Dholera taluka of Ahmedabad District.
Proposed development areas include building an all-weather modern port and shipyard for building/repairing facilities. The region also has the potential for developing export-oriented, industrial units/SEZs for developing automobile components, electronics, chemicals, cement production, and pharmaceuticals. The proposed investment project will offer the development of a knowledge hub/skill development centers for IT/ITeS and biotechnology companies.
The eight main investment sectors in the SIR are: heavy engineering, automobiles and auto ancillary, electronics, pharmaceuticals and biotechnology, metal and metallurgical products, general manufacturing, agro and food processing, and IT/ITeS.
The Dholera SIR entails the development of a total of 9225 hectares of land up to 2040 and will employ an estimated 800,000 persons, housing two million inhabitants. The government aims at a self-contained and comprehensive development of the region with a balanced growth of residential, commercial, and entertainment zones.
GIFT City – Gujarat International Finance Tec-City
The government of Gujarat has been determined to promote the state as a finance and technology hub. With this is mind, the state government in 2007 conceived an idea of a mega financial services hub to be called Gujarat International Finance Tec-City or GIFT city.
Recognizing the potential of the region, the state identified the extended area along the national highway 8, connecting Ahmedabad with the capital Gandhinagar as suitable for the development of a Central Business District (CBD). The city is planned on 886 acres of land with 62 million square feet located strategically on the banks of the Sabarmati River along with excellent land connections.
The GIFT City project is an emerging ‘Walk to Work’ city, including office spaces, residential apartments, schools, hospitals, retail, and other recreational facilities. Targeted business segments include offshore banking, offshore asset management, it services, business processing outsourcing services, and ancillary services like legal, accounting and audit, and recruitment.
To implement the project, the government of Gujarat through its undertaking Gujarat Urban Development Company limited (GUDCL) has established the ‘Gujarat International Finance Tec-City Company Limited’ (GIFTCL).
International Financial Services Centre
In 2015, the International Financial Services Centre (IFSC) was launched in GIFT City with the aim of establishing a vibrant financial services ecosystem in the city, and an investment gateway for India as a global financial platform.
On April 27, 2020, the International Financial Services Centres Authority (IFSCA) was established for the development and regulation of the International Financial Services Centre in GIFT City. As the nature of business requires a high degree of coordination within the sector, IFSCA aims to provide regulation with a holistic vision to promote ease of doing business in IFSC.
In September 2021, the IFSCA invited applications from eligible entities that want to set up and operate the international trade financing services (ITFS) platform at GIFT City. The IFTS would be an electronic platform for facilitating trade requirements for exporters and importers through global institutions.
Prior to that, in 2016, a competitive tax regime was announced incentivizing investors in IFSC, incentivizing activity by providing multiple tax reliefs including income-tax, dividend tax, Goods and Services Tax (GST).
Tax benefits available to entities setting up here include 100 percent tax exemption (for 10 out of 15 years), nine percent Minimum Alternate Tax (MAT), besides zero percent Security Transaction Tax (STT) / Commodity Transaction Tax (CTT), zero percent Capital Gains Tax, zero percent stamp duty, and zero percent GST.
In August 2021, IFSC GIFT City was awarded the Green Cities ‘Platinum’ certification for ‘Green Master Planning & Design and Implementation of Gift City’s Phase I Development’ by CII’s Indian Green Building Council (IGBC). The city strategically planned to achieve high energy efficiency through district cooling system and 100 percent LED street lighting, while also securing water management through 35 percent reduction in potable water consumption and treatment and reuse of 100 percent wastewater.
In August 2021, the state-owned General Insurance Corporation (GIC Re), seventh largest non-life reinsurer globally, announced it will shift its office from Dubai to GIFT City. It is also believed that the banking sector will form the core of the financial center with the IFSCA issuing its set of banking regulations that will replace the RBI’s (central bank) – specifying licensing conditions for establishing banks in the region, permissible activities, prudential norms, KYC, and anti-money laundering norms and so on.
In 2022, the Union Budget 2022-23 (Finance Bill, 2022) introduced proposals to establish world-class universities and an international arbitration center at GIFT City. In terms of taxation, the finance ministry has proposed various incentives, including tax breaks to encourage portfolio management and ship leasing at IFSCs.
Special Economic Zones in Ahmedabad
Special Economic Zones (SEZs) are growth engines that have boosted manufacturing, exports, and employment creation in India. The federal government introduced SEZs in May 2005 to provide a hassle-free operational regime with supporting infrastructure and services and tax breaks.
Ahmedabad District has the highest number of SEZs allotted by the state government. These cover specific sectors like IT/ITeS, pharmaceuticals, textiles and apparel, or are multi-product zones.
Doing business in Ahmedabad
Gujarat is a favorable location to conduct business in India. A Department for Promotion of Industry and Internal Trade (DPIIT) ranking showed the state to be in the top 20 for the past five years. Ahmedabad, its financial capital, has some of the most business friendly features in the country.
The state ranked first in the export competitiveness index and water management for the last two years by NITI Aayog in 2020. The state was also ranked “Best Performing State” by DPIIT in the National Startup Ranking for 2018 and ranked at the top in the Logistics Performance Index in 2019. In FY 2019-20, Gujarat saw the highest national increment of 240 percent in FDI inflows from previous year as against a growth of 14 percent in the total FDI received by India.
As India recovers from the economic stagnation caused by the pandemic, infrastructure expenditure will pay a crucial role in reigniting the economy. Being home to some of the most promising economic ventures and start-up enterprises, Ahmedabad will continue to play a key role in leading the charge back to normalcy. The state and federal government appear to be on the same page in terms of economic priorities, with respective ministries investing heavily on the area’s infrastructure and connectivity.
Capacity upgradation is ongoing in traditional industries like textiles and chemicals and new frontier opportunities are being created in the technology sector.
This article was originally published in September 2021. It was last updated February 10, 2022.
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