Jamal Mecklai: The end of cynicism

MARKET MANIAC

I recently read the Executive Summary of the Percy Mistry Committee report on "Mumbai as an International Financial Centre" and it blew me out of my ennui. I had been aware of the committee, of course, but hadn't really paid it much mind""in fact, narrowly focused as I was on both the day-to-day infrastructure pain of Mumbai and the continuingly loud close-mindedness of the regulators, I had assumed it would be an exercise in futility.

But, like I said, it was an inspiration. Everybody""certainly everybody in Mumbai""must read it; it's available on the Ministry of Finance website www.nic.in.

From a technical standpoint, the report was exhaustive, both in terms of the value to the economy of creating an International Financial Centre in Mumbai, and in detailing what needs to be done. The only issue that I can think of that wasn't addressed (but mind you, I have so far only read the Executive Summary) was the increased threat of migration into Mumbai if we were to increase its shimmer relative to the hinterland.

But the real value of the report, to me at least, is that it made me realise that in 1991, when India was right on the edge of global default, nobody""NOBODY""would have believed that just 15 years on (really, not such a long time), the world would be hailing India as an up-and-coming superpower, that India's IT industry would be world-beaters, and that even India's manufacturing would be receiving plaudits.

Looking at things from this perspective, I realised that, like most people, I seldom lift my head above the immediate timeframe to think about where India will be in, say, another 15 years.

So, let's do it. Let's first of all look at GDP per capita. Today, it stands at a meagre $830 or so. The good news, of course, is that strong growth now appears to have become entrenched in our economy""the last three years have seen an average of 8.5 per cent growth, ALL thanks to the dismantling of the licence-permit raj and deregulation of the telecom sector (and some modest subsequent changes) begun in 1991. Now, let's assume for a minute that we are able to grow at 10 per cent a year for the next 15 years""and this is only being optimistic if the committee's recommendations are not implemented""and let us also assume that inflation averages 5 per cent and net population growth 1 per cent. You know what that works out to? India's nominal GDP per capital in 15 years will be nearly $6,000! That's more than seven times what it is today! Seven times!

And, what do you think this new India will look like?

Well, to my mind, the first parameter we should look at is the fundamental one of equity. I was astonished to discover that on the Gini index (which compares income/consumption in the top and bottom 10 per cent of the population), India came in (in 2000) at 37.8, which""amazing as it sounds""is better than the US (40.8) and quite close to the UK (36.0). This would suggest that, terrible though our trickle-down processes are, the bigger issue is really the size of the pie. So, if the pie were suddenly""and 15 years can be a very short time""seven times larger, our poorest would be, substantially better off, even if there was no change in our Gini index.

But, and here I return to the committee's report, over the next 15 years""starting right now""the licence-permit raj in our financial sector will be dismantled, which, amongst other things, will dramatically improve linkages (and opportunities) all the way down the line, just as, say, the deregulation of the real estate sector is turning several poor farmers (certainly in and around Gurgaon) into crorepatis.

And, of course, there will be gazillions of micro-changes""it may be hard to believe but in 1991, the Maruti 800 was the hippest car made in India. Going forward 15 years, the country will be equally unrecognisable compared to today. For instance (and this was pointed out by my son), as education spreads and improves, there would be greater homogeneity in our society, particularly in the use of English, at least as a second language. This would boost efficiency and productivity in a global world, and also, as our working population became more and more mobile, accelerate the ongoing boom in domestic tourism. Which made me realise that in the future, the share of domestic expenditure in our economy would be higher than it is today""in other words, exports, which today make up about 12 per cent of our economy, would actually fall as a precentage of GDP. Which, in turn, would mean that the exchange rate would become less of a problem issue for the country, and the rupee would most likely be stronger than it is today""probably, much stronger.

Which brings me back to turning Mumbai into an international financial centre. There's no secret about what needs to be done, both in terms of liberating the financial infrastructure and reconstructing Mumbai's infrastructure""indeed, every one of the committee's recommendations has been recommended before by multiple individuals and committees.

All that is needed is to believe""and any way you look at it, the future looks so bright, we need to start moving towards it NOW. Unsurprisingly, the Prime Minister, no stranger to the impact of liberalisation on growth and the lives of the poorest, clearly recognises this""he has been the prime mover behind this committee and has been calling for a more rapid move to capital account convertibility.

All that is needed is that all the regulators""specifically including the RBI""immediately shift out of their "you can't do this, you can't do that" mindset. The longer they delay, the longer they are keeping India's poor from a better life.