Cabinet to decide on Mumbai turning IFC

NEW DELHI: The Union Cabinet will shortly take a call on whether Mumbai is ready to become a global financial hub or not. The high-powered expert committee (HPEC) on making Mumbai an international financial centre (IFC) has made a host of recommendations to enable Mumbai join the league of London, New York and Singapore as one of the premier IFCs of the world. The report was submitted to the finance minister on Tuesday and will be placed before the Cabinet shortly.

Making a case for establishment of an IFC, the high-powered panel has noted that purchases of international financial services (IFS) by India touched $13 billion in 2005 and is expected to be in the range of $50-70 billion by 2015. Consequently, it has been stated that “if the country does not proceed on establishment of an IFC, the revenues will go to other IFCs”.

Laying the road map for the development of Mumbai into an international financial hub, the committee has recommended key changes in financial sector governance and public debt management.

A move towards full capital account convertibility within 18-24 months, preparation of an exit strategy by the government for withdrawal from ownership of financial firms, gradual reduction of equity stake in public sector banks and establishment of a robust derivatives market along with a currency spot market have been identified as pivotal for the establishment of the IFC.

In addition, opening up of the capital markets to hedge funds and alternative investment vehicles while removing impediments to outsourcing of asset management by banks, insurance companies, mutual funds, pension funds and FIIs are other key recommendations.

The panel has identified six advantages the country has for establishing an IFC such as hinterland advantage, human capital, location, democracy and rule of law, mindshare and strong securities market the give Indiaa superior starting point on the movement towards export of financial services.

The strategy proposed comprises 10 elements including reducing debt-to-GDP ratio and reforming monetary policy, new approaches to public debt financing, a shift from overprescriptive rules-based regulation to principles-based regulation, reforms to taxation of IFS and financial transactions, inducing greater competition and innovation and opening up to IFS support services infrastructure and further liberalisation of financial services.

Besides, the panel has identified development of urban infrastructure in Mumbai as the task where greater emphasis is called for.