Why copy Dubai or Mauritius?

AS A COMPETITOR TO ASIAN FINANCIAL CENTRES

Mumbai - An international financial centre

The high-powered committee, chaired by former World Bank economist Percy Mistry, has recommended a package of radical measures to transform India's business capital into a global financial hub. Can they work?

The expert committee set up for making Mumbai an International Financial Centre has suggested India must not follow the quick growth models of Dubai or Mauritius, but has to set up its own model, based on deregulation and liberalisation of financial sectors, strong bond, currency and derivative markets and responsive role of institutional players in the capital markets.

"India must not be seduced to emulate the easier targets of Dubai or Mauritius, simply because those models are quicker to kick-start or conform better to an SEZ-based IFC model," the report said.

The Committee, in its report, specifically mentions that removal of capital controls would be practical and should be done as early as possible.

"The most important deficiencies that India must overcome, while moving towards an IFC, are the absence of efficient, liquid, currency and bond market. For an IFC in Mumbai to succeed, it will be essential to attract global issuers and investors into the Indian bond market," the report said.

"Capital Accounty Convertibility is first step, towards making Mumbai an IFC. Besides, there has to be clarity on the tax issues. Global institutions should be given scope across the verticals, not like confining their presence to few sectors. Places like Hong Kong and Singapore, have comparatively much clear policies on these issues, to compete against them, India has to adopt these measures," Hiresh Wadhwani, partner, Ernst and Young, said.

The report called for rapid development of Bond, Currency and Derivative (BCD) markets as to have vibrant trading in spot and derivative. The committee saw these three markets, having fundamental problems and weak institutional structures and poor liquidity.

"Speculative price discovery is lacking because the participation of arbitrageurs and risk takers, who are essential for providing liquidity, is discouraged," it added. It also highlighted that the commodity futures markets in the country lack regulatory credibility to attract national or international financial services customers.

"The Bill, to give more power to the Forward Market Commission, would be introduced any time. The FMC has already recommended mutual funds and FIIs participation in metal, bullion, crude futures, where the domestic markets are moving in international lines," FMC Chairman S Sundareshan said.

Trading of currency futures is banned in the country. The Mistry Committee said India lags substantially in this area. However, KN Dey of foreign exchange advisory company Basix Forex said having currency futures is not essential for city becoming financial hub and that convertible rupee is not the only way for an IFC in India.