Monday, November 12, 2007

How Bombay evolved.

From a fishing hamlet to the financial capital of the country, Mumbai has come a long way. Another journey in its future has begun now as the Government as well as the international community are in the process of making this city a Regional Finance Centre (RFC) by 2012 and an International Finance Centre (IFC) by 2022. But this is not a smooth journey for Mumbai to attain that goal, taking into consideration, the present infrastructural facilities and the most important c omponent, the political will, which are lagging behind.

Prime Minister Manmohan Singh made the announcement first in March 2006 to make Mumbai a global financial centre. Mumbai, he said, with its top-class human capital and commercial acumen, have a role in this new global financial architecture as international financial centres. “Mumbai can emerge as a new financial capital of Asia and be the bridge between Asia and the West in the world of finance.” With this aim, the Reserve Bank of India (RBI) had drawn a roadmap for fuller capital account convertibility. The Government also set up a High Power Expert Committee (HPEC) to suggest ways and means to make Mumbai an IFC. While many other technical issues such as developing financial products and deepening the debt market and other legal issues could be handled easily, a serious debate is under way: Whether to make the entire Mumbai city as an IFC or to have only a certain area of Mumbai to be developed as an IFC?

Compelling case

The report of the HPEC makes a compelling case for Mumbai to become an IFC. There was a need for de-regulation leading to further liberalisation and globalisation of the Indian financial services for successful promotion of a world-class IFC.

Mumbai needs a City Manager (whether elected or appointed) who is directly accountable to its citizens and residents. The city needs an administrative apparatus for governance that is under the direct control of such a City Manager — with the support of the State and the Centre — and that has its own revenue base and financial independence to match.

‘Milch cow’

“Mumbai has been a ‘milch cow’ for both the Centre and the State for some time. It has got very little backing for its own urban development. That asymmetry needs to be reversed,” the committee observed. Many experts conceded that self-governance for Mumbai and better infrastructure like housing are the basic necessities for making Mumbai an IFC.

India needs more capital to sustain higher rates of growth and thus the need for a robust international finance centre. It needs to decide whether it would house a financial centre which caters internationally or one which caters nationally — it is time for India to decide whether it needs to be the next financial services purchaser or services provider. No doubt, the HPEC report would prove to be a path breaking reform proposal for the Indian financial system.

“The creation of an international hub in Mumbai has to look at the wider eco-system rather than just the financial sector. Successful financial hubs are first foremost ‘global cities’ that act as clusters of human capital. If one can bring together right people and institutions, the economics will follow,” states Sanjeev Sanyal of Deutsche Bank in an article ‘Building an IFC in Mumbai’.

Other issues

Among other issues, Mr. Sanyal said, every effort must be made to ensure that the city’s human capital does not de-cluster. Rent-control and road congestion in South Mumbai have forced the economically active population to relocate themselves. Mumbai needs more tertiary educational facilities, both inside the city and within easy reach. A financial hub does not just require a plethora of finance institutions.

Enclave

Some argue that these issues would be resolved by creating a separate enclave for IFC. The HPEC is categorical in its opposition to such an enclave approach. The committee stated that it would take a great deal of effort to police a special economic zone with special privileges in order to ensure that there were no leakages to the mainstream economy. .

In a recent visit to India, Chancellor of the Federal Republic of Germany, Angela Merkel, said that the fast growing cities needed all the attention of national policy but to help cities “we must not stop developing the countryside.”

The report of the HPEC concludes, “Mumbai needs to be seen across India and around the world as a welcoming, cosmopolitan and cultured metropolis capable of accommodating a large number of expatriates. It is only with such an ethos that Mumbai can become an IFC.” Making a separate area of Mumbai as an IFC would be an escape route to avoid the ground realities.

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