Mumbai as an IFC, What is this? May 8, 2007Posted by nsworld in Business and Economy.
Aftermath of the Percy Mistry (former world bank economist) committee report, `Mumbai as an IFC `debate has started again. It was Finance minister P Chidambaram who first mooted this idea in his 2005 budget, but since then this idea has taken new dimensions and come a long way.
What is an IFC? `International Financial Centre` means , includes and provides a `one stop shop` for all the Financial Services needs of big corporates. When I say Financial Services for large corporates it includes , services ranging from Due delligence, Accounting, Legal, Private placements, Investment Banking,Leveraged Buy Out assistance,Fund rising, sorts of services required by corporates when they go for Mergers and Acquisitions overseas.
What is the Status Quo? Due to various regulatory bottlenecks such as ,No scope for full capital account convertibility, (100% Capital account convertibility allows any one to freely move from local currency to foreign currency and back) Absence of regulatory `go ahead` for forex futures market, Large stakes of government in big Financial corporations, and excess intervention of Central banks in Money and Forex markets, etc are few of the reasons that are discouraging Globally big Financial Service providers from opening their shops in India in general and Mumbai in specific and they prefer places like Singapore, London, Newyork.
What is the Loss? A booming Indian Economy is encouraging more and more number of domestic corporates to take the route of international mergers and acquisitions, this is creating more and more demand for `International Financial services` such as Fund rising in the form of debt or equity, private placements. And also services such as Legal , due delligence and accounting . In 2005 Indian companies paid a whopping $13 billion in the form of commissions to these financial intermediaries for their services and it went to intermediaries situated in Singapore, London and Newyork. Recently Tata steel completed its LBO (Leveraged Buy Out ) of Corus for $12.9 billion and imagine the service charge paid by the company for intermediaries.(just take 1.5%of the total value)Like this when our economy is growing at 9% what will be our demand for `International Financial Services` in the years to come and how much we end up paying?
What is the solution? If the regulatory environment is condusive many of the leading `International Financial Service` providers set up their shops in India itself and we can ensure that the amount spent by the corporates for these services remain in India and it inturn creates employment , and has some trickle down effect also.