Divya Bhaskar-Monday, April 30, 2007

Mumbai IFC : A Visionary Report

Aam Aadmi

Sa So Tarapore

The Report of the High powered Expert Committee on Making Mumbai as an International Financial Centre (Mumbai IFC), is truly a visionary document. The Report is meant for the serious minded change managers to read, reread and take studied decisions. The authors of the Report knowing the impatience of decision takers have also provided an extremely clear 21 page Executive Summary and a 24 page Summary of Recommendations. The majestic sweep of the Report is such that no one can make a claim of having fully absorbed the Report.

2. The Report sets out a grand vision as to how Mumbai could achieve the status of an international financial centre. In the first phase (2007-2012), Mumbai would need to connect the Indian financial system with the world’s financial markets, rather like what has been done by Frankfurt, Paris, Sydney and Tokyo. In the second phase (2012-2020), Mumbai must develop the capacity to compete with the three established international financial centres viz. London, New York and Singapore.

3. There is criticism of the Report that it does not sufficiently recognize the grass root realities. But that is precisely what a visionary Report is meant to do if it has to stimulate the change agents into action. Visionaries are often burnt at the stakes, but out of their ashes, years later, comes belated recognition that the visionaries were saviours. Today, the Mumbai IFC Report could be buried but be sure that in 2050 policy makers would rue that had attention been given in 2007 to implementing the HPEC’s Report, India would have reaped tremendous advantage. Let not our present narrow horizon prevent the authorities from carrying the ball further. The authorities need to take an early, in principle decision on whether they see the advantages of a Mumbai IFC which has been coherently and persuasively set out in the Report. Once the authorities are convinced about the broad thrust of the proposal a High Powered Implementation Group should be set up. This small cohesive Group should undertake on-going work towards implementation. As such, members of the Implementation Group should be decision takers and not advisers and academics on the sidelines, who do not have any authority and therefore no responsibility.

4. I would set out certain issues for discussion and the authorities response on these issues would be a gauge of the commitment of the authorities to the grand design of working towards making Mumbai as an IFC.

5. First, there is the issue of giving up majority public sector ownership in banks. The Narasimham Committee II (1998) had unequivocally argued that public ownership of banks and efficiency were not mutually consistent and that the majority public ownership should be given up. The Committee on Fuller Capital Account Convertibility (FCAC) reiterated the Narasimham Committee’s recommendation. The HPEC has also strongly endorsed this recommendation . The banks here and now need about Rs 45,000-50,000 crore to shore up their capital. I doubt that the government would be willing to provide this large amount without clever financial engineering. The track record in the recent period is worrisome. The takeover of RBI’s stake in SBI by the government in what is called a cashless transaction, the merger of IDBI and IDBI Bank, which brings the fledgling bank back into the public sector, and the noise of the UTI Bank being brought into the public sector, are all discouraging signals, which only reinforce the government’s firm commitment to continue with public ownership of banks. The HEEC unequivocally requires, as a basic prerequisite, public ownership of banks be reduced to below 49 per cent by end 2008, below 26 per cent by end 2010 and a full exit by 2015. This is a salutary recommendation, but there does not seem to be any light at the end of the tunnel.

6. Secondly, the HPEC argues for a rapid liberalization of the capital account over the next 18-24 months, latest by the end of calendar 2008. It bears recalling that the FCAC Committee set out a five year roadmap ending in fiscal 2011-2012.There was sharp criticism of the FCAC Report by very high decision making levels that the Report was not ambitious enough. But there are no signs that the authorities intend to step up the implementation in a shorter timeframe.

7. There are a number of vital issues on which the HPEC has made recommendations, inter alia including autonomy of the RBI, separation of debt management and monetary policy and a wide gamut of measures on market development. This short column cannot make a pretence of having touched the fringe of the HPEC recommendations. The HPEC Report deserves serious examination by Parliamentarians, policy makers, civil servants, financial sector honchos, academics and the discerning public at large.

8. The nation owes a debt to the HPEC, as also its erstwhile Chairman, Mr. Percy Mistry; the Report bears the unmistakable imprimatur of Mr. Percy Mistry, and whatever view one may take on the internal tensions in the Committee, it does not detract from the high quality of the Report.

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