Role of Special Economic Zones in Fostering Innovation:

In Part I of this article, we investigate the strategic significance of Special Economic Zones (SEZs) in fostering the development of financial technology (FinTech), particularly due to the establishment of the International Financial Services Centre (IFSC) within the Gujarat International Finance Tech-city (GIFT). It is a notable illustration of a Multi Services Special Economic Zone, covering approximately 105 hectares within Gujarat International Finance Tech-city (GIFT). GIFT stands as India's inaugural International Financial Services Centre (IFSC), established under the Special Economic Zone Act of 2005.

By providing stakeholders with insights, this overview underscores the importance of the regulatory framework governing SEZs, the infrastructure and regulatory framework of GIFT, emphasizing their role in attracting foreign direct investment and overcoming governance and infrastructure deficiencies. On a focal point, we analyse the establishment of the IFSC Authority (IFSCA) as a unified regulator consolidating the regulatory authorities of SEBI, RBI, IRDAI, and PFRDAI. By positioning GIFT as a pioneering global financial and IT services center. This part underscores its strategic importance in bolstering India's stature as a prominent international hub for financial services. Through an analysis of GIFT's infrastructure and regulatory framework, legal professionals gain insights into the conducive environment for FinTech ventures within SEZs.


To overcome the obstacles faced by businesses, particularly within Special Economic Zones (SEZs), significant measures were undertaken. These included streamlining regulations through the enactment of the Special Economic Zones Act in 2005, aimed at simplifying the process of establishing businesses within SEZs and reducing bureaucratic hurdles. 1

Efforts were also directed towards improving infrastructure within SEZs to meet international standards, encompassing investments in transportation, utilities, and telecommunications. Stability in the fiscal regime was prioritized to provide certainty to investors, achieved through policies and incentives designed to attract foreign investments and foster economic growth within SEZs. The announcement of the SEZ Policy signalled the government's commitment to promoting growth and creating a conducive business environment.

Enactment of SEZ legislation by the Parliament, following extensive consultations, provided the necessary legal framework for SEZ operation. These concerted efforts aimed to create a favorable environment for investment and economic growth within SEZs, laying the groundwork for successful operations and attracting foreign investments while promoting exports of goods and services from India.2 A Special Economic Zone (SEZ) represents a distinct territory or enclave within a nation's boundaries distinguished by its implementation of more relaxed economic regulations compared to the surrounding areas. It is typically duty-free zone and has different business and commercial laws chiefly to encourage investment and create employment.

In the year 2000, the Ministry of Commerce and Industries implemented the Special Economic Zone (SEZ) policy, aiming to overcome governance and infrastructure deficiencies and attract foreign direct investment. The government subsequently enacted the SEZ Act, 2005, which was accompanied by the SEZ Rules, 2006. It envisions state governments playing a pivotal role in export promotion and the development of associated infrastructure, as well as streamlining the approval process by establishing a board of approval. GIFT, positioned strategically, serves as a pioneering global financial and IT services centre, rivalling internationally renowned financial hubs.

"Gujarat International Finance Tec-City Company Limited" (GIFTCL) has established "GIFT SEZ LTD." to develop a Multi-Services Special Economic Zone (SEZ) in Gandhinagar, with an emphasis on the establishment of IFSC and related activities within the SEZ.3 It is imperative to acknowledge that financial services will constitute the principal emphasis of the Multi Services SEZ.

In accordance with the International Financial Services Centres Authority Act, 2019 (IFSCA Act), the IFSCA was established4 whose principal office is situated in GIFT City, Gandhinagar, Gujarat. The dynamic nature of business in IFSCs necessitates extensive inter-regulatory coordination within the financial sector. To facilitate business in IFSCs and provide a world-class regulatory environment, the IFSCA has been established as a unified regulator with a holistic vision. The primary aim of the IFSCA is to foster a robust international linkage and prioritize the requirements of the Indian economy, while also functioning as a global financial hub for the region and the worldwide economy at large.5

The regulatory authorities of four financial services regulators in India have been consolidated under the IFSCA for the first time. These authorities include the SEBI, RBI, IRDAI, and PFRDAI. The IFSCA is now the unified regulator for financial institutions, financial services, and financial products for IFSCs in India.6

Special Economic Zone (SEZ) Policy and GIFT's Strategic Role

The GIFT City IFSC, which has received approval from the Government of India, strengthens India's strategic standing as a prominent international center for financial services. In addition to furnishing a worldwide financial platform, it facilitates convenient entry into the Indian economy, which ranks among the world's largest and most rapidly expanding. India is the fifth largest economy globally, with a GDP of USD 9.45 Tn, and has the third greatest GDP by purchasing power parity, at USD 3 Tn. India rose from 79th to 63rd place in the Ease of Doing Business ranking between 2014 and 2019. The country received its highest-ever total foreign direct investment (FDI) inflow of $70 billion in 2019-207.

With over 25 billion real-time internet transactions in 2020, India will have the most of any country in the globe.8 As one of the FinTech markets with the most rapid growth, India is home to the third-largest ecosystem worldwide. By virtue of its robust ecosystem, extensive local and global connections, and concentration of financial institutions, GIFT CITY is exceptionally positioned to provide support to FinTech ventures. The absence of currency conversion restrictions and the presence of a single regulator for banking, capital markets, insurance, and funds management within GIFT IFSC, a distinct financial jurisdiction in India, facilitates business transactions for FinTech companies with innovative ideas or solutions that transcend the banking, capital, or insurance sectors.

GIFT is a pioneering global financial and IT services center in India, strategically positioned to rival or surpass internationally renowned financial centers including Tokyo's Lujiazui, Shanghai, Shinjuku, La Defence, Paris, and London Dockyards, among others. Multi-Service SEZs with IFSC (International Financial Services Centre) status, Domestic Finance Centres, and related social infrastructure are made possible through the GIFT Master Plan9.

The primary goals of establishing the IFSC in the GIFT Multi Services SEZ includes the objective of the Indian government of becoming a significant economic power, it is necessary to support the establishment of a robust foundation for international financial services within the nation. Assist in the execution of the governmental plan to establish a financial center in the subcontinent of South Asia. To establish the IFSC as a region of international caliber for the long-term provision of service and office space, as well as advanced economic, technological, and commercial infrastructure10. As GIFT SEZ is an integral component of GIFT Area, the GIFT Area design concept integrates GIFT SEZ Area with the remainder of the domestic area within GIFT. GIFT SEZ is characterized by distinct Processing and Non-Processing zones, strategically designed to foster integrated development.


The symbiotic relationship between SEZs like GIFT and regulatory sandboxes plays a crucial role in driving FinTech innovation and shaping the future of the financial ecosystem in India. While SEZs provide the infrastructure and regulatory framework conducive to FinTech growth, regulatory sandboxes offer a controlled environment for experimentation and risk mitigation. Together, they contribute to a dynamic and sustainable financial sector landscape, fostering innovation while ensuring regulatory compliance and consumer protection. As legal professionals navigate the evolving FinTech landscape, understanding the strategic role of SEZs and the importance of regulatory sandboxes becomes paramount in facilitating innovation and fostering a conducive environment for FinTech ventures.

The Part II discusses about the transformative influence of Special Economic Zones (SEZs) on the global business landscape with the advancement of innovation through the utilization of regulatory sandboxes while exploring the successes and challenges associated with these various regulatory sandbox frameworks.

*This is the First article in our series on Role of Special Economic Zones in Fostering Innovation. Our Second article is available here.



2 Dr.P, Govindan. (2019). A Study of Performance of Special Economic Zones (SEZs) in India. 6. 30-42 at

3 FAQs – General, available at , accessed on 17 January 2024

4 Section 4 (1) The International Financial Services Centres Authority Act, 2019

5 International Financial Services Centres Authority, accessed 17 January, 2024.

6 International Financial Services Centres Authority,, accessed 17 January, 2024.

7 International Financial Services Centres Authority,, accessed 17 January, 2024.

8, accessed 17 January, 2024

9 Gujarat, G. GIFT SEZ LTD., accessed 17 January, 2024.

10 Ibid

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