With developed financial markets melting down, experts today said India should grab opportunities to become an international financial hub by developing its capital market and moving towards a single financial regulatory system.
India must create a vibrant bond market and allow capital account convertibility, said Percy Mistry, chairman of Oxford International Finance, and chairman of the panel that authored a report on how to make Mumbai an international financial centre.
Referring to the flight of foreign capital from the Indian capital market in the aftermath of the global financial crisis, Mistry said only resident Indians are impacted by the restrictions on capital account convertibility. “If the capital account convertibility is opened up, it will be easier to manage the economy,” he added.
Mistry said the recommendation given by the panel on International Finance Corporation (IFC) is more relevant today and needs to be implemented faster than ever. He said there is a clash of interest of regulation and too much state-ownership in banking, insurance and pension and other sectors. There is a need to allow independence to regulators and India should have a single regulator like the Financial Services Authority in the UK.
Giving an example of fragmented regulation, he said US insurer AIG was managed by a state regulator, but it posed a threat to the entire financial system in the world.
Jignesh Shah, chairman of Financial Technologies, said India has the potential to fill up the gap created by the developed nations in the financial sector as it has a sound banking sector and its regulations are much better than that of developed nations.
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Shah also emphasised on the need for a separate exchange for small and medium enterprises to tap the capital market with a low compliance cost.
India needs to set up a truly international financial centre to promote free and fair competition, said Stuart Popham, senior partner, Clifford Chance, UK.