The Hindu Business Line : Celebrating Mumbai's resurgence

Finance is Mumbai's boom industry, fuelled by an explosive combination of economic growth, visionary technology and impressive human capital. Mumbai has size, safety and speed. By 2010, it will be the hub of a strong, growing regional capital and commodities market, says G. Ramachandran.

EVERY self-respecting politician, manager and entrepreneur has a plan to turn her or his city into a capital of finance. Mr Joe Hockey too has had one since 1996, when he began to represent North Sydney in Australia's Parliament.

He was Australia's Minister between 1998-2001 for financial services and regulation. His portfolio included responsibilities for corporate law, consumer affairs and competition policy — the 3Cs. The financial services industry and its regulation should serve some large economic and social purpose. The 3Cs give the right perspective and context to financial services and regulation. The inclusion of corporate law and competition policy takes care of the economic side of organised activity and regulatory supervision. Consumer affairs and consumption by society go hand in hand. Consumption is the raison d'être of economic activity and financial investments. It may be of interest to many that the central ministry that supervises the Indian commodity futures marketplace has consumer affairs in its scope. Mr Hockey is now minister for small business and tourism in Prime Minister John Howard's Government; his youth, exuberance, optimism and pragmatism make a big difference to both.

His aim in 1998 was to entice banks to move their Asian operations from Singapore or Hong Kong to Sydney. What was his biggest fear in 1998? He had this to say: "Indeed, for labour and technology-intensive financial operations, Sydney's biggest rival won't be Singapore, Hong Kong or Tokyo, but India."

The inclusion of India in the league of cities did not look inapt then. India had by then become a large unified city because Mumbai, in general, and the National Stock Exchange, in particular, had integrated many important segments of India's financial services electronically. India's competence in financial services and financial technologies, he thought, would rise to stunning heights because of Mumbai's experience in banking, insurance, securities, commodities, trade, finance and shipping.

Six years on, India's competence in financial services has risen — convincingly — to a decent height. Banking, consumer credit, rating, fund management, investment banking, insurance, securities trading, commodities and trade finance are booming across the nation. The boom is the result of dependable regulation and, more significantly, the growing aspirations of households. Aspirations of households drive economic booms. Everything else is an accessory, excess or excuse.

Finance is Mumbai's boom industry, fuelled by an explosive combination of economic growth, visionary technology and impressive human capital. The expansion of the domestic markets and the very large-scale integration effected by technology-savvy institutions give Mumbai a formidableness that other cities in Asia and Australia may envy. Mumbai will continue to integrate more and more of India's financial sector activities. Its rise to prominence and dominance will continue through this decade, and it will begin to integrate the markets in South Asia. By 2010, Mumbai will be the hub of a strong, growing regional capital and commodities market. The value of daily gross throughput of the wholesale financial and commodity markets could exceed $800 billion. Netted settlements after removing nested transactions could exceed $140 billion daily.

There are two other estimates that impress. Assets worth about $6 trillion will be managed by fund managers; they will depend on Mumbai for research, execution and hedging. The annual two-way capital flows — debt, equity, and mergers and acquisitions — will rise to over $660 billion. Money and capital will drive this spectacular growth, and both will play equally important roles in thrusting Mumbai into global prominence.

Money flows will be driven by Mumbai's penchant for efficiency. Mumbai's talented and inspired human resources will drive the capital flows.

Domestic markets

Analysts of financial centres argue that one way of assessing financial centres' competitiveness is by the size of their domestic markets. This logic makes Mumbai a winner by a mile. Deregulation, big-league managers, big-time entrepreneurs and technology have expanded India's domestic markets, fuelled consolidation and changed the way businesses is conducted within the finance industry's value chain. High-quality human resource, institutionalised experimentation, new financial technologies and improved communications have contributed to better penetration followed by consolidation. New products and retail processes continue to proliferate at breathtaking pace.

Everyone that is innovating feels there are good risks to be taken since more and more households have turned willingly towards new financial savings products. What is more, they are borrowing more to acquire cars, computers and homes. But it is not a binge. The aggregate leveraging of Indian households is a very small fraction of US households' aggregate leveraging. Hence, savings and consumer credit have a long, safe road ahead.

Variety and real-time aggregation are necessary to keep the road safe. That is where size — more particularly, the future size — matters.

India's underserved and distrusting households will take years to take the markets to a fully-served, fully-trusted state. They also possess significant heterogeneity. There are the very young in the twenties, the happy and affluent pensioners from government service and everyone else in between. India's households collectively possess a rare chunkiness that Singapore and Sydney may never possess. Moreover, Mumbai has ably aggregated the diffuse and dispersed heterogeneity. No one does better with technology.

Integrated integrity

Scale, electronic proximity and the death of distance have amplified the expansion of the domestic markets and integrated institutional strengths. At the same time, high-speed order execution through electronic systems, centralised funds transfer and real-time gross settlement through electronic networks have slashed the cost of transactions and the cost and riskiness of settlement. High safety and high speeds have been simultaneously achieved at low and affordable costs. Mumbai has size, safety and speed.

Therefore, the future of Asia's commodity and financial markets is in Mumbai. Mumbai is where the future has begun to take shape because physical proximity counts in the emergence of cities as financial centres of the world. It is neither strange nor surprising that London's stature grew rapidly because its stock exchange drew traders. It is also not an accident that the London Stock Exchange was founded where locals met in coffee-houses.

Two of the four national commodity exchanges; the National Stock Exchange and the Stock Exchange, Mumbai; both the central securities depositories; and a third of the big banks are headquartered in Mumbai. The chain includes the Reserve Bank of India, the Forward Markets Commission and the Securities and Exchange Board of India. The three institutions supervise and regulate the banking, commodity and securities sectors, in that order. All three are headquartered in Mumbai.

Human edge

Mumbai's rivals are big now. But they may not be able to keep pace hereafter. Singapore will never acquire the underlying chunkiness of Mumbai's domestic ballast. Hong Kong will have to share its glory with Shanghai. Sydney will be a great laid-back place, but will have to forever reckon with the ego-driven markets of Japan and South-East Asia. Nevertheless, Mumbai will have everything going its way, and will forever be a magnet that draws to it high-quality entrepreneurs, employees and employers. Mumbaikars — Mumbai's residents — will be the principal edge with which the megapolis will win its reputation as a global financial centre.

The war will be fought with their talent, high self-esteem, simple lifestyles, tolerance and enduring belief in the self. Mumbaikars will speak several tongues but their thrust on innovation and effectiveness will be the same. Mumbai's capability to offer everyone a lifestyle that suits aspirations and wallet sizes is unparalleled, and will remain so.

New talent from every part of the country will continue to pour in as ever. For each of these newcomers, the promise of resurgence will be the most compelling force. And, even as they shape their own resurgence, they will unwittingly shape Mumbai's resurgence.

(The author is a financial analyst. Feedback may be sent to indiagrow@sify.com)

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