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Visions and reality

The high-powered committee appointed by the Government of India has outlined the steps needed to realise the vision of Mumbai as an international financial centre (IFC), as announced in the budget. The rationale for developing such a centre to spearhead the country's thrust into high-end financial services is unexceptionable. For the country, export of financial services is a natural progression from value added services exports such as software. Among Indian cities, Mumbai alone bids fair to emerge, over time, as an IFC taking its place alongside the world's leading centres such as London, New York, Hong Kong, and Singapore. Given that the Indian economy, growing at over 8 per cent, would also be globalising faster, these high-end financial services would be in demand from Indian companies as well. With a robust financial centre in place, not only can India meet the domestic demand but also tap the large global market. Currently, Indian companies engaged in cross-border transactions meet their requirements of these services — basically legal and financial advice on cross-border mergers and acquisitions, and loan syndication restructuring — from international firms operating out of the large financial centres. The committee has estimated that Indian companies bought almost $13 billion worth of financial services in 2005. That figure is bound to grow exponentially.

India has some natural strengths. The quality of human capital, widespread use of English, familiarity with risk-taking and strengths in IT are all well recognised. Mumbai is situated in an ideal time zone between Asia and London. The rule of law, a democratic structure and freedom of speech are the other advantages. The country's two principal stock exchanges are within the world's top five in terms of the number of transactions. However, many products and services offered in an IFC are either absent in India or at an early stage of development. The committee's key recommendations concerning financial sector policy and urban economics, though welcome from a long-term perspective, are unlikely to be accepted in a hurry. For instance, an accelerated time frame for capital account convertibility, a further opening up of the financial sector, doing away with branch licensing and, above all, a thorough overhaul of central banking are all areas where a swift movement is neither practicable nor even desirable. Similarly, bringing Mumbai up to world standards of urban infrastructure and governance is a goal worth working for. However, given the present woeful state of even its basic services, that would seem unachievable for now. Clearly, grand visions like this one take time even to be considered seriously.

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