By IANS
New York : India intends to make Mumbai an International Financial Centre with plans to turn financial services into the next growth engine for the country, according to Finance Minister P. Chidambaram.
As the economy becomes more open and trade intensity increases, giant financial flows will go through India, already a trillion dollar economy with outflows and inflows together accounting for nearly 106 per cent of the GDP, he said Thursday.
India believed there is an opportunity for India to become a provider of international financial services as well with their value estimated to go up from $13 billion to $48 billion a year by 2015, Chidambaram, a Harvard-educated economist, told the ICICI Securities Annual Investor Conference here.
“It is, therefore, our intention to make Mumbai an International Financial Centre,” Chidambaram said disclosing that the government is in the process of building a consensus on the key recommendations of a report commissioned for this purpose.
While the outlook for the Indian economy remains positive, the huge inflow of foreign funds had become one immediate concern, he said.
“It is indeed a new situation for us, but I am confident that we would be able to manage the situation,” Chidambaram said noting that some measures have been announced in recent weeks, including those by the Securities and Exchange Board of India (SEBI) Wednesday to moderate the flow of funds into India.
Assuring investors that India has no intention of imposing controls on capital inflows or keeping out certain kinds of funds, he said it had become necessary to take these steps with some developed countries injecting a considerable amount of liquidity into their own markets in order to overcome their own problems.
“Part of that liquidity has spilled over into India and some other countries. Besides, there is also evidence that foreign investors in some countries may be liquidating their holdings in the securities of those countries and looking for investment opportunities elsewhere,” Chidambaram said.
“However, keeping in view the long term, we would have to take more substantial measures to quicken the pace of investment, expand production capacities, increase imports and facilitate more capital outflows,” he said.
Inviting investors “to share the challenge and opportunity that is India today” as it continues to write its growth story, Chidambaram said “when that story is fully written, India will be the fourth largest economy in the world.”
As they weigh the opportunities and the risks, they should consider that “India is a vibrant democracy, that its economy is increasingly open, and that it is a country governed by the rule of law.”
“I can assure you that none of this will change – not now, not in the near term, and in fact, never. If there are any changes, they will be changes for the better and towards a more open and competitive economy,” Chidambaram, a staunch votary of financial reforms, said.
An investor’s first concern is safety, and that safety is assured by the rule of law, Chidambaram said, noting India has an arbitration law that mirrors the UNCITRAL (United Nations Commission on International Trade Law) rules, India accepts international arbitration, and foreign awards are enforceable in India.
“India has entered into bilateral investment protection agreements with 68 countries, and we are willing to enter into similar agreements with others,” Chidambaram said. It had also made every effort to ensure that the policies provide a level playing field for both the foreign investor and the domestic investor.
Asserting “that the political risk of doing business in India is perhaps the lowest among the emerging or the fast growing economies of the world”, he noted “six different governments have steered reforms though 16 years without reversing a single reform measure, and that has earned for India an unique credibility.”
India’s policies and practices have yielded results, Chidambaram said. Since 1991, both foreign institutional investment and foreign direct investment have recorded a steady and secular rise.
Cumulative investments by FIIs as on Sep 30 was $63.63 billion with 2007 alone bringing in $13.21 billion. Similarly as on June 30, FDI was $59.54 billion with $11.29 billion coming in since January.
Noting that the Indian financial markets have played a vital role in consolidating and accelerating the growth momentum. Since the United Progressive Alliance (UPA) government took office in May 2004, it had taken a number of steps to strengthen the securities market, Chidambaram said, describing “the Indian securities market is among the best regulated in the world today.”
“While the India growth story is broad based, not every business in India has been a gainer in the country’s growth story. Nevertheless, I can say with confidence that the gainers in India’s growth story have outnumbered the losers,” he said.
Family owned businesses that opposed the policies of liberalization have lost; businesses that embraced liberalisation and globalisation have gained. Industries that were sheltered behind licenses and tariff walls have lost; industries that were prepared for competition and raised their efficiencies have gained.
Entrepreneurs who relied on their own capital and skills and were content to remain small have lost; entrepreneurs who brought in professional managers, boldly accessed the capital market and introduced new products and services have gained.
Above all, sectors of the economy that were thrown open to the private sector and to real competition – such as banking, insurance, information technology, telecommunication and aviation – have gained tremendously,Chidambaram said.
On the other hand, sectors that are still closed or only partially open – such as mining and power distribution – have lagged behind and huge wealth is locked in a few companies, he noted.