By Dipankar De Sarkar, IANS,
London : The current rate of economic growth in India – approaching 10 percent – can be sustained only if the financial services sector is allowed to expand to keep pace with overall growth, a key British financial group said Friday.
The International Financial Services London (IFSL) – the only sector-wide representative body in Britain – has made the comment in its published reaction to the draft report of the Indian Committee on Financial Sector Reforms, or the Rajan Report.
The IFSL released its comments to a group of top London bankers and financial services executives in the city at a meeting called Friday to discuss opportunities and risks offered by the Indian economy and to better coordinate British investors’ approaches to India.
The meeting was chaired by Standard Chartered chairman Sir Thomas Harris.
The report, written by Raghuram Rajan of the Chicago Business School and commissioned by Planning Commission deputy chairman Montek Singh Ahluwalia, is not being taken in the city as a long-term strategy.
Rather, it is being seen as a strategy intended for the next government in New Delhi.
In its comments, the IFSL welcomed the Rajan Report and said its timing was “propitious.”
“At a moment when the current global economic environment has acted as a trigger to global protectionist sentiments, a liberal market framework offers the best insurance against a rapid worsening of economic conditions.”
The view that any economy can successfully isolate itself was “misguided,” it added.
The IFSL’s comments on strategies to sustain the Indian growth rate come after ICICI chief K.V. Kamath told a meeting of British and Indian businesspeople Thursday that a 10 percent growth rate could be achieved and kept up even if the services and manufacturing sectors continued to grow at their current rates.
The IFSL welcomed the Rajan Report’s emphasis on expansion of financial services and its view that the existence of underdeveloped areas and restrictions on participation in Indian financial markets is a source of financial risk rather than a contribution to stability or robustness against global economic forces.
At the same time, Friday’s meeting in London – as also the IFSL comment – stressed the importance to enhance inclusion, growth and stability, with bankers expressing concern at the growing rich-poor divide in India.
It said foreign-owned banks and other financial intermediaries could play a role in enabling financial inclusion in India.
“There is a common misperception that foreign financial services providers from developed markets have no experience of financial inclusion. That is not so,” the IFSL said.
It said British providers have “plentiful experience” of catering for financial inclusion in Britain and in Europe and “they are already developing a track record of doing so in India.”
The IFSL called for a timetable of when and in what order the Rajan Committee recommendations should be implemented and, “possibly, guidelines on accountability for implementation.”
“It would also fit well with the (Report’s) ‘hundred small steps’ approach to indicate which require primary legislation and which can be implemented through administrative actions. This would add clarity and reduce any risk that key recommendations and proposals are not identified for action,” the IFSL said.