Can Mumbai overcome the Big P?

?FOR us, it?s politics with a small p,? explains an official at the City of London Corp, which represents UK financial services, elaborating a key reason why London has emerged as the top financial centre in the world. The first-ever Global Financial Centres Index (GFCI) is just out, and London is No 1, ahead of New York. The index traces the competitiveness of 46 financial cities in the world.

Back home, the report of the high-powered expert committee (HPEC) on making Mumbai an international financial centre (IFC) has established just how difficult that is. Consider the to-do list: reforming the RBI, making the rupee fully convertible by 2008, reducing the government?s equity and finally exiting all financial institutions by 2015, abolishing securities transaction tax (STT) and stamp duties, putting in place a new Financial Services Modernisation Act to replace existing legislation governing the financial sector, among many other things. The committee has also proposed a currency exchange and trading in currency derivatives. But the all-important question is, is there enough political and regulatory will for these to take shape? Or will politics with a ?Big P? botch it up?

Let?s view the HPEC?s recommendations in the context of what the GFCI findings?conducted by Z/Yen for City of London, with inputs from PricewaterhouseCoopers?have thrown up. In the survey, Mumbai finishes 39th. The ratings place Mumbai in the ?minor? category, along with such cities as Rome, Moscow, Seoul and Warsaw.

Ironically, the Asian financial market is seen as the one to watch, with Hong Kong, emerging third, seen as a serious contender to becoming a global financial centre. Singapore finishes fourth, but Shanghai and Beijing are 24th and 36th on the chart, respectively.

London and New York are seen as true global financial centres. Hong Kong is seen as an international centre, since it conducts a significant volume of cross-border transactions. Then there are niche financial centres like Zurich, which specialises in private banking. There are national financial centres like Toronto in Canada, and regional financial centres like Chicago (which is also an international one).

Some findings of the survey hold special relevance for the Mumbai IFC dream. For instance, regulation is cited as a decisive factor contributing to the competitiveness of London and New York. Onerous regulation can have serious negative consequences on the competitiveness of a financial centre. The regulatory and tax environments are now seen as the biggest contributors to overall competitiveness, unlike in 2005 when an earlier report had respondents rating people and skills as most important. No wonder then that the HPEC also recommends that RBI restrict its role to maintaining a ?base rate? which straddles the twin objectives of price stability and growth, and suggests management of public debt should be made independent or vested with the finance ministry so that there is no perceived conflict of interest at RBI.

What does London think of Mumbai?s capability as a potential IFC?

Infrastructure and regulation are seen as the two biggest challenges. The need for better infrastructure apart, the global financial community clearly sees opening up of the banking sector by RBI and the creation of a vibrant bond market as crucial requirements, and London officials even say chairmen of Indian state-run banks need to be compensated better. That will give them the confidence to take ?brave decisions?, it is argued.

There?s also the issue of an inclusive society. The Mayor of London, Ken Livingstone, speaks passionately about how they want people from all over the world to come, live and work in the city. In fact, the HPEC on Mumbai shares a similar dream when it says Mumbai must develop into a welcoming and cosmopolitan metropolis with a large number of expatriates and finally, only 25-30% of the city?s people will be of Indian origin.

But finally, whether the Big P can be overcome will remain the biggest challenge of all. That alone can clear the decks for Mumbai?s IFC dream to take shape in the years ahead.