India: The Rising Elephant

The Percy Mistry report was an amalgamation of the thoughts and opinions of a High Powered Executive Committee (HPEC) on establishing Mumbai as an international financial centre comparable to London, New York and Singapore. It came out in April 2007, and a little more than a year has passed. Interestingly, almost none of its recommendations have even begun to be implemented. The report itself is interesting for many reasons.
The first is that it lays bare the tangled webs of regulation, supervision and repression that the Indian financial system is currently struggling under. The second is that it critically compares Mumbai to four other IFCs – London, New York, Singapore and Dubai. Each has their strengths and weaknesses, and a cross-IFC perspective on these is extremely illuminating, even by itself. The third is that it does not restrain itself to criticism, but lays out a concrete road map towards achieving these goals and provides solutions towards this end – including important recommendations regarding fiscal, monetary and financial policy (the one that is most obviously desirable and logistically easy to implement is to begin issuance of rupee denominated bonds to be sold to global capital markets). The growth implications are also clearly charted out.

What are the limitations? I feel that the report provides only big-picture perspectives, and working out the details is where the true challenge lies. For example, on the monetary front, the separation of monetary policy, debt management and financial regulation is undoubtedly desirable – since conflicts of interest are rife and obvious. Establishing independent agencies for each function and adopting inflation targeting by the RBI is also a desirable goal, although creating roadmaps for each of these is a task in itself. While the report had pioneered many of these ideas in the Indian context, it seems to serve more as an overarching piece of Indian economic utopia, telling policymakers what they should look for and work towards.