One of Chennai?s dreams is to be the second financial hub of the country, after Mumbai. Tamil Nadu today is a favourite destination for investment. MK Stalin who has just been appointed deputy chief minister wants to keep up the growth momentum of the state. So he has announced all kinds of attractions like a mega integrated aerospace park, an entertainment cum communication technology park, sector specific policies for traditional industries and building affordable houses for industrial workers. Stalin also hopes to build a financial city near Chennai with private sector participation. He wants to attract banks, insurance companies, mutual funds and stock brokers to the state.
Various South Indian chief ministers have wanted a financial city in their states. During his high flying days as CM, Chandrababu Naidu too wanted to attract finance professionals to Hyderabad and build a financial district in his Cyberabad. He managed to get the Insurance Regulatory Development Authority (IRDA) to formally commence partial operations from Hyderabad in 2002. Similarly the Infrastructure Development Finance Corporation was set up in Chennai in the late nineties.
Today the IDFC has only its AGMs in Chennai. For all practical purposes the institution operates out of Mumbai. Let?s face it.
Mumbai is the financial capital of the country. It has the country?s oldest stock exchange, with a 150 year old tradition of trading. It is home to two of the country?s largest stock markets?the Bombay Stock Exchange and the National Stock Exchange?as also the central bank and the markets regulator, the Securities and Exchange Board of India. Mumbai also has a dream.
It wants to become an international financial centre. The prime minister endorsed this view a couple of years ago.
Several panels and committees have gone into ways and means of making Mumbai an IFC. Experts say Mumbai?s location is eminently suitable for daylong trading across time zones, with a time difference of three-and-a-half hours with Tokyo, four-and-a-half hours with London and nine-and-a half hours with New York. As a hub of financial flows, Mumbai scores on high equity trading volumes and good presence of global banking and financial services firms. The highly impressive Bandra Kurla complex was supposed to be the centre of all this activity.
However Mumbai is nowhere near becoming an IFC. Mumbai is beset by infrastructure problems: traffic snarls, lack of housing, water shortage and an unreliable power system that results in routine power cuts in the suburbs.
Chennai?s rulers think that they can create a financial hub because Chennai is a preferred destination for back office operations. Officials say that two sites on city outskirts had been identified for the purpose. ?An extent of 75 to 100 acres of land will be needed for creating the social infrastructure for the project. Two sites have been identified, and discussions will be held with stakeholders to find out their preference,? they say. Facilities like schools, medical facilities, housing and leisure would be provided to cater to the needs of employees in the proposed financial city. Just as Tidel Park became an icon to attract IT companies to the state, the proposed financial city would provide an ecosystem for the banking and insurance sectors to set up shop, they hope.
The point is financial hubs happen organically. Finance follows business and money. Chennai may be a manufacturing centre and a city full of BPOs. But the big names of Indian business like the Tatas, Birlas, Ambanis are not headquartered in Chennai. The RBI does not operate from Chennai. As a banker points out, cheques issued from Chennai still take one week to clear in Mumbai. There also has to be a vibrant local participation in retail finance. The South does not have this culture. Retail trade is more or less dead here.
Why is London the finance capital of the world (at least before the meltdown)? London is the banking centre of the world and Europe?s main business centre. The headquarters of more than 100 of Europe?s 500 largest companies are in London. A quarter of the world?s largest financial companies have their European headquarters in London too. The London foreign exchange market is the largest in the world, with an average daily turnover of $504 billion, more than the New York and Tokyo combined. Along with the European Bank for Reconstruction and Development, there are more than 550 international banks and 170 global securities houses have set up offices in London. By contrast Frankfurt has around 280, Paris 270 and New York 250.
Which is why it is difficult for even Mumbai to catch up. A financial city needs a critical set of investment bankers, traders and financial management professionals. They gravitate towards what they see as a place of action. Not towards ten buildings built for the purpose. Says an investment professional who operates internationally, ?Sadly, Chennai lacks an entertainment culture apart from its lack of infrastructure. Deals are made in pubs and bars. People gossip about million dollar deals made in Dubai. Then they rush there. Where can people gather in Chennai??
This may sound facetious. But there is a lot of truth in it, say many professionals. So it is going to take quite a while before Chennai realises its dream.