Mumbai as an Int’l Financial Center: Aspects of the Indian Economy

1. Mumbai as an Int’l Financial Center: Aspects of the Indian Economy India Visit 2013 George Mason University January 14, 2013

2. Structure of the presentation Structural transformation of India’s economy 1 Financing sustainable growth 2 3 Why do we need a domestic IFC for funds How far along are we as an IFC? 4 Where do we go from here? 5

3. Structural change in India’s economy 1 Financing sustainable growth 2 3 Why do we need a domestic IFC for funds How far along are we as an IFC? 4 Where do we go from here? 5

4. India has consistently been one of the fastest growing economies, with a high savings rate fuelling investment ... Growth rates of selected countries %, CAGR Savings Rates in India and other countries Gross Domestic Savings (% of GDP) Source: World Bank, RBI

5. 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 Total BOP flows Trade flows Financial flows Source: RBI

6. … with increasing reliance on foreign savings

7. 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

8. The Rupee has been increasingly freed over the past 3 decades, with increasing volatility: sign of more market oriented economy

9. Has India then become more “coupled”? Yes and No:Initial shock of financial crisis was via global liquidity, but transient ... Was mainly due to a foreign funds liquidity shock India GDP growth slowdown ... % yoy Source: Govt of India, RBI

10. Transformation of India’s economic structure will create opportunities across multiple sectors … Services Emerging as pre-eminent growth driver

11. 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 P Source: Mckinsey Global Institute

12. … resulting, within India, an integration between urban and rural, evident in the convergence of consumption patterns Rural and urban FMCG consumption Rs bns Urban Rural Source: Che Kothari Studio Source: McKinsey Global Institute

13. Over the long term, the India Opportunity Remains Intact… good chance that India will shine in a slowing world High Savings rate Favourable demographics High Investment Rate Structurally Higher Growth

14. 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) Source: World Bank

15. Structural transformation of India’s economy 1 Financing sustainable growth 2 3 Why do we need a domestic IFC for funds How far along are we as an IFC? 4 Where do we go from here? 5

16. The financial sector will be a critical enabler for sustainable growth …

17. Infrastructure funding … 1 XI Plan infra financing projections (USD billions) Composition of Infra. funding 1,214 514

18. … 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 Source: Planning Commission

19. SMEs: Entrepreneurs with cash balances and falling leverage will create growth opportunities 2

20. Financial inclusion: leveraging unconventional channels and new technology 3

21. Structural transformation of India’s economy 1 Financing sustainable growth 2 3 Why do we need a domestic IFC? How far along are we as an IFC? 4 Where do we go from here? 5

22. 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

23. Translating funding potential into flows for infrastructure:Structuring financial products to match risk profiles of investors 1 Long Term Retirement Funds Key Requirements Product Features required Investor Segments Credit Protection / Credit Enhancement Traditional Insurance Plans Provident Funds Pension Funds Retail Individuals Trusts Capital Protection Steady returns

24. Translating funding potential into flows:Structuring financial products to match risk profiles of investors 2 Fixed Income Investors Product Features required Key Requirements Investor Segments Securitised cash flow pools Rated and listed instruments Regular Income MFs Unit Linked Insurance Plans Private Banking Units Foreign Endowments Foreign Insurers Well-structured asset pools Diversified and performing cash flows without project risk Secondary market liquidity

25. Translating funding potential into flows:Structuring financial products to match risk profiles of investors 3 High Yield Investors Product Features required Key Requirements Investor Segments Without recourse project finance Appropriate risk – reward Foreign Project Finance Institutions Sophisticated investors (e.g., hedge funds) ECAs / Development Institutions Viable Projects Consistency of Policy

26. Structural transformation of India’s economy 1 Financing sustainable growth 2 3 Why do we need a domestic IFC for funds How far along are we as an IFC? 4 Where do we go from here? 5

27. Thank You