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ShareFM cites reservations in Mumbai, but says in New York that he is backing the concept
"Given the current exchange rate, India is a trillion dollar economy. Outflows and inflows together account for nearly 106% of the GDP.
As the economy becomes more open and trade intensity increases, giant financial flows will be intermediated in India. India is a purchaser of international financial services.
A recent report has estimated the value of these services at $13 billion a year and has concluded that this will rise to $48 billion by the year 2015.
While India will continue to be a purchaser of financial services, we believe that there is an opportunity for India to become a provider of financial services as well.
It is, therefore, our intention to make Mumbai an International Financial Centre. We commissioned a report for this purpose."
--Excerpt from the speech of Union Finance Minister P Chidambaram at the ICICI Securities Annual Investor Conference in New York on October 18, 2007
Many who heard the finance minister make these remarks in New York, and applauded must not have heard him speak on the same subject six months ago.
On April 23, 2007, at a function in Mumbai, Chidambaram spoke at length on the report, which tried to make a very strong pitch for Mumbai (hence India) as an international finance centre.
The report, authored by Vijay Kelkar and Brooks Entwistle, came into the public domain on April 3, 2007.
In his address to the gathering in Mumbai, the finance minister had then cautioned the audience that notwithstanding the recommendations of the Kelkar and Entwistle committee that had authored the report, he had serious reservations about Mumbai becoming an international finance centre (IFC).
According to him, his reservations were on account of fears that not all political parties were willing to embrace a high rate of economic growth.
He was possibly referring to the stand of the Leftist parties who had shown great opposition to the privatisation of public sector units and foreign investments.
A second objection voiced by the minister was that in order to make Mumbai an IFC was that it required several changes to be made in matters relating to the governance of activities in the financial sector.
First, it required the Reserve Bank of India (RBI) to be free from all other regulatory functions, except for ensuring that inflation did not go out of control. It would require convertibility on capital account to be introduced as well.
Chidambaram had expressed fears that such changes could not be introduced very soon in India.
A third reservation he expressed related to the governance of Mumbai itself. "It is not what powers Mumbai has, but what kind of governance structures Mumbai will have... for good houses, schools, drinking water, energy, roads and law and order," he stated.
He said such issues could not be swept under the carpet, and that Mumbai had also "acquired an odious reputation that it is under the influence of not-over-the-ground elements."
While Chidambaram did express hope that some day the plans outlined in the Mumbai IFC report would come to pass, his reservations made it abundantly clear that none of these would happen soon, more particularly in a city like Mumbai where governance was a big question mark.
Then why did the Union finance minister make quite the opposite observations in New York? Why then did he make an unequivocal statement that it is his "intention to make Mumbai an International Financial Centre"?
Observers are a bit perplexed. Was it to play to the gallery in New York?
Or was it because he was aware of how the state government of Gujarat had quietly stolen a march over Maharashtra in starting its own version of an International Finance City.
It may be recalled how on June 28, just two months after Chidambaram's Mumbai talk, Gujarat unveiled plans of opening the Gujarat International Finance Tech-city (quaintly acronymed GIFT) as the largest international finance service (IFS) centres in the world.
It would be located on a 500-acre development project near Gandhinagar, on the banks of the river Sabarmati, at an investment outlay of approximately Rs 24,500 crore ($6 billion).
Unlike many projects announced by both the Centre and Maharashtra, the Gujarat government has already allocated land for this project, and has witnessed the signing of MoUs with Kotak Bank, Chescor and IL&FS, each expressing a willingness to take up at least one million square feet of office space in GIFT.
The project is expected to become fully functional by 2012. If all goes well, the IFS sector alone could result in 9 million jobs and contribution to GDP of an additional $385 billion by 2020.
More about this project will be unveiled in second part of this article.
Could Gujarat's plans have compelled the finance minister to assure the world that the Mumbai IFC concept was still being actively pursued?
Sceptics point out that except for Dubai no IFC sponsored by a government has ever come up anywhere in the world. They also point out that unless the issue of speedy and effective dispute resolution is settled, India cannot have an IFC.
At best, it can have an international financial services centre - on the lines that Gujarat has proposed. They point out how even the 1992 Harshad Mehta case continues to drag in the courts - even after appointing a special court to resolve the issue.
Financial disputes need to be resolved within hours, not years or decades.
