Download Mumbai as an Int`l Financial Center:Aspects of the

Mumbai as an Int’l Financial Center:
Aspects of the Indian Economy
India Visit 2013
George Mason University
January 14, 2013
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Kellogg India Business Conference
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Structure of the presentation
1
Structural transformation of India’s economy
2
Financing sustainable growth
3
Why do we need a domestic IFC for funds
4
How far along are we as an IFC?
5
Where do we go from here?
2
1
Structural change in India’s economy
2
Financing sustainable growth
3
Why do we need a domestic IFC for funds
4
How far along are we as an IFC?
5
Where do we go from here?
3
India has consistently been one of the fastest growing economies,
with a high savings rate fuelling investment ...
Growth rates of selected countries
%, CAGR
CAGR (1994-08)
CAGR (2005-08)
China
8.9
India
6.4
Poland
11.0
8.8
4.4
Russia
Savings Rates in India and other countries
Gross Domestic Savings (% of GDP)
China
51.5
Singapore
50.6
Malaysia
42.3
India
5.3
32.5
Indonesia
3.5
31.0
7.3
S Korea
South Africa
3.3
30.0
4.5
Vietnam
USA
2.9
Brazil
2.3
2.7
0
2
4.4
4
6
8
26.6
Japan
21.9
Phillipines
19.3
15
10
Source: World Bank, RBI
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35
45
55
4
4
India has become more integrated with the global economy, with share
of both trade and financial flows in GDP having doubled
BOP flows account for over 100% of GDP
% of GDP
120%
114%
111%
95%
104%
Total BOP flows
90%
67%
53%
55% Trade flows
48% Financial flows
47%
30%
62%
53%
56%
60%
36%
28%
23%
19%
0%
1992-93
2001-02
2003-04
2005-06
2007-08
2009-10
Source: RBI
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… with increasing reliance on foreign savings
10
Current account deficit (% of GDP)
5
50
48
0
46
-5
-10
44
-15
42
-20
40
-25
38
FY01Q1 FY02Q1 FY03Q1 FY04Q1 FY05Q1 FY06Q1 FY07Q1 FY08Q1 FY09Q1 FY10Q1 FY11Q1 FY12Q1FY13Q1
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Indian corporates have expanded their presence in overseas markets,
for increasing scale and access to technology ...
Market
Access /
Scale /
Branding
Raw
materials /
Energy
Knowledge /
Technology
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The Rupee has been increasingly freed over the past 3 decades,
with increasing volatility: sign of more market oriented economy
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
33
35
37
USD/INR
39
41
43
45
47
49
51
53
55
May-00
38
May-02
May-04
May-06
May-08
May-10
May-12
40
42
44
46
48
50
52
54
56
58
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Has India then become more “coupled”? Yes and No:
Initial shock of financial crisis was via global liquidity, but transient
India GDP growth slowdown ...
% yoy
... Was mainly due to a foreign funds liquidity
shock
8
Short term trade credit ($ bn)
6
6
6
5
5
4
4
3
3
2
2
1
0
0
-2
-1
-4
-4
-6
FY08 : Q2
FY09 : Q1
Source: Govt of India, RBI
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FY09 : Q4
FY10 : Q3
FY11 : Q2
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Transformation of India’s economic structure will create opportunities
across multiple sectors …
Services Emerging as pre-eminent growth
driver
Urbanisation will not only be a growth driver, but also deepen
connections, e.g., through remittances and food supply chains
Urban contribution increasingly important for growth
Urban Population
700
Share of urban towns in GDP
45
Urbanization Rate (Rs,%)
Urban
Rural
100
40
40
600
90
35
500
5.8
80
46
30
28
30
70
42
54
26
400
25
300
20
Growth
Rate
(%)
60
50
40
8.3
15
200
31
30
10
20
54
69
58
46
100
5
220
290
340
590
0
0
1991
2001
2008
10
2030
0
1991
2001
2008
2030 P
Source: Mckinsey Global Institute
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… resulting, within India, an integration between urban and rural,
evident in the convergence of consumption patterns
Rural and urban FMCG consumption
Rs bns
Urban
673
298
96
80
Rural
256
376
160
67
13
1995
2005E
2015F
Source: McKinsey Global Institute
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Source: Che Kothari Studio
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Over the long term, the India Opportunity Remains Intact
… good chance that India will shine in a slowing world
High Savings rate
Favourable demographics
50
Brazil
China
India
Russia
Structurally Higher Growth
South Africa
Brazil
China
India
Russia
South Africa
12
40
Real GDP Growth %
Investments as % of GDP
High Investment Rate
30
20
10
0
7
2
-3
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
13
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Yet …
we have to learn from success of others!
China had more poor people than India in 1990
Population living below $1.25 per day (millions)
800
600
1990
2005
400
200
0
India
China
Source: World Bank
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1
Structural transformation of India’s economy
2
Financing sustainable growth
3
Why do we need a domestic IFC for funds
4
How far along are we as an IFC?
5
Where do we go from here?
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The financial sector will be a critical enabler for sustainable growth …
16
1
Infrastructure funding …
XI Plan infra financing projections (USD billions)
1,214
Composition of
Infra. funding
514
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… where banks will retain their re-dominant role, but other institutions
will be needed to provide more funds
Actual source of funds in the first 3
years of XI Plan (2007-2010)
Share of institutions
in private sector debt
100%
90%
14%
Equity
41%
Private
Debt
NBFCs incl
IIFCL
24%
80%
70%
60%
50%
Commercial
banks
51%
Insurance
cos
10%
40%
External
commercial
borrowing
15%
30%
20%
45%
Budgetary
Support
10%
0%
2007-10
Source: Planning Commission
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18
2
SMEs: Entrepreneurs with cash balances and falling leverage will
create growth opportunities
19
3
Financial inclusion: leveraging unconventional channels and new
technology
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1
Structural transformation of India’s economy
2
Financing sustainable growth
3
Why do we need a domestic IFC?
4
How far along are we as an IFC?
5
Where do we go from here?
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What does an IFC do? Matching investors with financing risks

Facilitate funding
– Matching risk profile of credit with investors

Manage risks
– Global workforce expanding at rate slower than job creation

Manage the development of an ecosystem
– Legal, accounting, consulting

Technology
– New products and product delivery mechanisms
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Translating funding potential into flows for infrastructure:
Structuring financial products to match risk profiles of investors
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Long Term Retirement Funds
Investor Segments
Key Requirements
Product Features required
1. Traditional
Insurance
Plans
Capital Protection
Credit Protection / Credit
Enhancement
Steady returns
2. Provident
Funds
3. Pension Funds
4. Retail
Individuals
5. Trusts
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Translating funding potential into flows:
Structuring financial products to match risk profiles of investors
2
Fixed Income Investors
Investor Segments
Key Requirements
Product Features required
1. Regular
Income MFs
Well-structured asset
pools
Securitised cash flow pools
2. Unit Linked
Insurance
Plans
Diversified and
performing cash flows
without project risk
3. Private Banking
Units
Secondary market
liquidity
Rated and listed
instruments
4. Foreign
Endowments
5. Foreign
Insurers
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Translating funding potential into flows:
Structuring financial products to match risk profiles of investors
3
High Yield Investors
Investor Segments
Key Requirements
Product Features required
1. Foreign
Project
Finance
Institutions
Viable Projects
Without recourse project
finance
Consistency of Policy
Appropriate risk – reward
2. Sophisticated
investors (e.g.,
hedge funds)
3. ECAs /
Development
Institutions
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1
Structural transformation of India’s economy
2
Financing sustainable growth
3
Why do we need a domestic IFC for funds
4
How far along are we as an IFC?
5
Where do we go from here?
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Thank You
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