The Hindu Business Line : `Governance of financial system needs radical change'

Mumbai April 23 The Union Finance Minister, Mr P. Chidambaram, said on Monday that there is no clear architecture for the governance of the Indian financial system.

Referring to the recommendations of the high-power expert committee on Mumbai as an International Financial Centre, he said, governance of the financial system requires radical change.

"We are struggling to put in a regulatory system for pension. We have just got our act together and expect to introduce a new regulatory system for pension. But all these laws will not be passed easily."

Targeting inflation

Addressing a national conference on `Mumbai as an International Financial Centre', he said the committee report highlighted the role of the central bank saying it must have only one mandate — inflation targeting — and all other functions should be taken away. While no conclusions had been drawn, a beginning has been made by setting up the debt management office within the Finance Ministry, Mr Chidambaram added.

There were other aspects. The banking, insurance and pension systems all required sound governance structure. "Unless these laws are in place, I cannot say with confidence that we have moved forward."

The Finance Minister said a lot has to be done to improve Mumbai's infrastructure for the city to become an International Financial Centre.

Provider or purchaser?

Mr Chidambaram was not sure how many people are convinced of the need to make Mumbai as international financial hub.

The volume of capital inflows and outflows is equal to 90 per cent of the GDP and in the next few years it may exceed the GDP. The choice now, he said was whether the country wanted to be a provider of financial services or a purchaser of it.

The Maharashtra Finance and Planning Minister, Mr Jayant Patil, agreeing on the need to upgrade the city infrastructure, assured the gathering that there would be a sea change in the landscape in the next five to ten years.

Dr K.P. Krishnan, Joint Secretary, Ministry of Finance, outlined the essence of the report. The conference was organised jointly by the CII and Ministry of Finance.