Transcript US Fed’s Interest Rate Policy

National Conference on
Mumbai as an International Financial
Centre
Mumbai
April 23, 2007
Dr. K. P. Krishnan
Ministry of Finance
Convenor HPEC
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Key Message
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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
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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
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Composition of the HPEC
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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
9. Shri O.P. Bhatt
10. Ms. Usha Narayanan
11. Shri Subodh Kumar
12. Shri Nimesh Kampani
13. Shri Mohan Raj
14. Shri T.T.S.Raghavan
15. Dr. K.P. Krishnan
16. Representative of RBI
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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
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Why do we need an IFC?
• The need for long-term finance
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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
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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
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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
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What does India need to do?
Key recommendations
i. CAC in 18-24 months
ii. Reduce the debt/GDP ratio
iii. Reform the monetary policy regime
iv. New approaches to public debt financing
v. Creation of the BCD market nexus
vi. Financial market integration - shift away from
segmented approach
vii. Shift from over-prescriptive rules-based
regulation towards principles-based regulation
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What does India need to do?
Key Recommendations…..
viii. Reforms to taxation: No tax haven but
implement FRBM Taskforce
recommendations
ix. Inducing greater competition & innovation
x. Improving the performance of the legal
system
xi. Opening up IFS support services
infrastructure
xii. Developing the investor base
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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
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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
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Thank You
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