Whalesbook
This potential agreement represents a calculated move by Indian authorities to elevate GIFT City's status from a promising domestic hub to a credible global financial center. The development is part of a broader push for deeper economic integration, highlighted by the recent conclusion of a major EU-India Free Trade Agreement. Finalization of the ESMA pact would provide a critical regulatory endorsement, potentially accelerating asset growth in the hub, which already saw AIF commitments reach approximately $23.5 billion by mid-2025.
A Challenge to Offshore Financial Hubs
The primary strategic objective of the IFSCA-ESMA agreement is to directly compete with established offshore jurisdictions. For years, fund managers seeking to channel global capital into India have favored centers like Singapore, Mauritius, and Dubai due to their tax efficiency and mature regulatory environments. However, GIFT City is rapidly closing the gap by offering significant tax incentives, including exemptions on capital gains and GST, and substantially lower operating costs. According to a PwC survey in late 2025, 63% of senior financial executives expressed interest in establishing operations in GIFT City, signaling strong industry confidence in its growth trajectory. This agreement with ESMA is viewed as a crucial piece of infrastructure needed to repatriate India-focused funds and capture a larger share of global investment flows.
The Reality of the 'EU Passport'
While the arrangement is being referred to as a 'passport', it is more nuanced than a universal access key. The agreement will likely facilitate marketing under the EU's Alternative Investment Fund Managers Directive (AIFMD) through National Private Placement Regimes (NPPRs). This means that while the pact removes a major hurdle, fund managers will still need to comply with the specific marketing rules of each individual EU member state where they wish to attract investors. The process requires a country-by-country assessment by ESMA, which evaluates factors like investor protection and regulatory cooperation. This is a significant step up from the current system but falls short of the seamless, single-market access enjoyed by EU-domiciled funds. The recent ESMA-RBI agreement on central counterparties, which resolved a two-year impasse, sets a positive precedent for this type of regulatory cooperation.
Outlook for Capital and Competition
Market participants anticipate that a finalized agreement will significantly bolster capital raising for the nearly 200 fund management entities already registered in GIFT City. The arrangement is particularly vital for Alternative Investment Funds (AIFs), as it addresses a key 'cooperation' prerequisite under EU directives, streamlining access to European institutional liquidity. As European investors continue to show interest in India's high-growth economy, this regulatory bridge could channel substantial new commitments into the country. The move positions GIFT City not just as an entry point to India, but as a globally integrated hub capable of competing on cost, regulation, and now, market access.