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National Conference on Mumbai as an International Financial Centre

National Conference on Mumbai as an International Financial Centre. Mumbai April 23, 2007 Dr. K. P. Krishnan Ministry of Finance Convenor HPEC. Key Message . India highly integrated with world economy Needs substantial International Financial Services This need being met outside India

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National Conference on Mumbai as an International Financial Centre

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  1. National Conference on Mumbai as an International Financial Centre Mumbai April 23, 2007 Dr. K. P. Krishnan Ministry of Finance Convenor HPEC kpk mifc ppt 23/04/07

  2. Key Message • India highly integrated with world economy • Needs substantial International Financial Services • This need being met outside India • Indians key participants in production of IFS • India has natural advantages in this production • Infra and policy constraints holding India back • Solving these necessary & desirable even otherwise • In the process India can create an IFC in Mumbai kpk mifc ppt 23/04/07

  3. Mandate of HPEC • Budget Speech 2005 announced a High Powered Expert Committee (HPEC) to look into issues for making Mumbai a regional financial centre • However HPEC’s deliberations focused on making Mumbai an international financial centre as this is a desirable goal for India & Mumbai is the natural metaphor for this kpk mifc ppt 23/04/07

  4. Shri P.S.Mistry Chairman Shri M. Balachandran Shri Aditya Puri Shri K.V. Kamath Shri C.B. Bhave Shri Ravi Narain Shri Bharat Doshi Dr. P.J. Nayak Shri O.P. Bhatt Ms. Usha Narayanan Shri Subodh Kumar Shri Nimesh Kampani Shri Mohan Raj Shri T.T.S.Raghavan Dr. K.P. Krishnan Representative of RBI Composition of the HPEC kpk mifc ppt 23/04/07

  5. Some background facts • Total two-way gross flows on BOP transactions: • $101 billion in 1992-93 (47% of GDP) • $237 billion in 2001-02 (54% of GDP) • $657 billion in 2005-06 (91% in 2005-06) • Thus, while India is growing rapidly, it is globalizing even faster aided inter-alia by reduced customs duties, greater MNC presence • Such a globally integrated economy requires a number of International Financial Services (IFS) • IFS market estimated at $13 billion in 2005 • Expected to increase to $48 billion by 2015 kpk mifc ppt 23/04/07

  6. Why do we need an IFC? • The need for long-term finance • India saves & invests about 1/3rd of its GDP • Of late GDI is more than GDS • Large infrastructure funding requirements • Opening up to global competition will be the fastest and surest way to develop the sector kpk mifc ppt 23/04/07

  7. India’s advantages & constraints • Hinterland advantage • Human capital • Location • Democracy and rule of law • Mindshare • Strong securities markets • However, two sets of constraints hold India back: • financial sector constraints and • urban infrastructure and governance kpk mifc ppt 23/04/07

  8. What is holding India back? • Financial Sector Issues • Fragmented markets and regulation • “Missing” markets: the Bond-Currency-Derivatives (BCD) nexus • Inadequate competition and universe of institutional investors • Urban Issues • Urban infrastructure • Cosmopolitan culture & lifestyle facilities • Governance kpk mifc ppt 23/04/07

  9. What does India need to do? Key recommendations • CAC in 18-24 months • Reduce the debt/GDP ratio • Reform the monetary policy regime • New approaches to public debt financing • Creation of the BCD market nexus • Financial market integration - shift away from segmented approach • Shift from over-prescriptive rules-based regulation towards principles-based regulation kpk mifc ppt 23/04/07

  10. What does India need to do? Key Recommendations….. • Reforms to taxation: No tax haven but implement FRBM Taskforce recommendations • Inducing greater competition & innovation • Improving the performance of the legal system • Opening up IFS support services infrastructure • Developing the investor base kpk mifc ppt 23/04/07

  11. Next steps & time-frame • First phase (2007-2012): Mumbai connects India's financial system to world's financial markets • Second phase (2012-2020): Mumbai to join London, New York, Singapore as one of the world’s premiere IFCs • 48 major recommended actions with definite time lines • Most of them to be completed in the first phase kpk mifc ppt 23/04/07

  12. Conclusion • Early 1990s - concept of a globally competitive Indian manufacturing sector seemed an impossible dream • Yet removal of domestic entry barriers, barriers to trade, FDI began • Similar steps in the financial sector can have similar results • Gains inevitable if savings intermediated into investment by a world-class financial system kpk mifc ppt 23/04/07

  13. Thank You kpk mifc ppt 23/04/07

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