‘A bond market is essential to encouraging growth’

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: Alderman David Lewis, the 680th Lord Mayor of the City of London, believes in plainspeak. During a 12-day tour of India, Lewis, who represents the entire financial community in London’s Square Mile, did just that in an interview with FE’s Sourav Majumdar about a wide range of issues like why Mumbai is still not a major financial centre yet, the need for a corporate bond market, the quality of regulation in the UK, and much more. Excerpts:

What is the agenda of your trip?

We’re here to talk about a number of things. We’re impressed with the Indian market. Trade between our respective countries is about 9 billion pounds, or $18 billion, distributed fairly half-and-half, and we would like to see it grow. The UK is the second-largest investor in India, a fact that is sometimes overlooked. India is the second-largest investor in the EU and the UK gets about 60% of that. So, we’re very pleased with that. The UK is investing heavily in India; it would like to invest more. India is a fantastic economy with huge growth prospects. There are challenges in investing in India; restrictions which we would like to see raised because it is difficult to invest here.

The reason London is so successful is because 20-25 years ago, we lifted our restrictions and got rid of exchange controls. The financial services sector in Britain is the largest sector which produces 14.5% of our GDP and contributes 26% of corporate tax. We would like to see the same happen, gradually, in Mumbai. We think Mumbai deserves to be a financial centre, which it is not regionally or globally, yet. It’s at number 48, globally, and deserves to be much higher than that.

You’ve done a lot of work with India on corporate debt. What are your comments on that?

If you look at the local market, companies go to banks. But $500 billion of infrastructure projects, genuine growth. How are you going to encourage growth here? One way of doing that is the corporate debt market which, at the moment, is really not there. A statistic which I found very interesting is that, the size of the Indian corporate bond market is 2% of the GDP. That is absurdly small. If you want your domestic industries to grow, there’s got to be domestic bonds. You, India, need to do it because, first of all, it’ll help your growth. Without it, it’s difficult to see how you’re going to grow. Everybody can’t just go offshore. Sebi needs to try and encourage the local bond market. Get the stamp duty right, the institutional investor limits changed.

There are other things which need to be done, too. Like liberalising banking restrictions, legal and accounting restrictions. All of which you are well aware of.

What do you think is holding it back? Do you think it’s a lack of political will? Number 48 among global financial centres is a real paradox, given the rate of economic growth in this country.

Yes, you deserve to be near the top. We would love to see you near the top. It’s certainly not a problem of your not understanding what to do. I mean, you’ve got these high-level reports, written by very, very intelligent, well-educated Indians who have produced them. I can only assume that there’s some… because an election is coming up… maybe there’s a blockage in the pipeline, maybe there’s a bit of vested interest in certain areas. Certainly, there’s vested interest on the legal and accountancy front on not allowing foreign lawyers in. Clearly, vested interest. Without any question. And you can quote me on that. But that’s not news to anyone.

Sovereign wealth funds (SWFs) have become a major factor. However, a big debate is also raging on their motives and risks associated with that. What is your view on the entire gamut of issues relating to such funds?

We’ve had SWFs in the City of London for more than 50 years. We’ve had the Kuwaitis and the Brunei Investment Authority quietly going about their business, making a lot and a lot of money, not interfering politically. We welcome SWFs. We’ve got more than half of them with offices in the City of London. Three months ago, the head of the China sovereign wealth fund with $200 billion came to London and said he’s going to open an office in the city and we welcome him.

We do not take the view like some—Germany, France, others—who seem to think there’s some problem with such funds coming in. As long as you comply with our regulations and our laws, which are quite clear and encouraging foreign investment, we’ve got no problem. We even have no problem with people bidding for our stock exchange, the London Stock Exchange. None, whatsoever. We don’t care who they are. Some would say you got to have an international voluntary code for SWFs. We have no problem with that. We don’t insist on it.

On the issue of regulation, you have mentioned that the quality of your regulation is high. There’s, however, a view expressed that London’s regulation is lax. Even about the London AIM Market, there is a view that people come in because regulations are lighter.

I don’t think we’re lax. I don’t think our American friends are in any position to describe the London market as unregulated or a “casino”. All I would like to suggest is, perhaps you’d like to look at the country where the subprime crisis commenced. I am very confident that the London regulatory system is absolutely fine… and if it is the stock exchange you’re talking about, it has different levels for different companies at different stages of their growth. The AIM Market has been fantastically successful—we’ve got lots of Indian, Chinese and Russian companies. We welcome them. Yes, the disclosure requirements for those particular levels are different. An AIM market is intentionally an AIM market. What is the purpose of having an AIM market with full listing requirements? You might as well have everything with full listing.

The failure rate, which is the test, on AIM is exactly the same as on the main market. It’s about 2.5-3%. Name me one other stock exchange in the whole world which has a better success rate than that.

Do you think India is somewhat insulated from the present turmoil in the global economy?

A year ago, the world economy was different, everyone was optimistic and the optimism turned out to be slightly misplaced, globally.