Supplementary evidence from the City of
London
REPORT BY THE RT HON THE LORD MAYOR (ALDERMAN
JOHN STUTTARD) ON HIS VISIT TO INDIA
REVISED REPORT, OCTOBER 2007
EXECUTIVE SUMMARY
The Lord Mayor, accompanied a business delegation
of 40 representing the full range of financial services sectors,
paid a very concentrated and productive visit to India from 19-26
May. The principal objectives were to promote the UK-based financial
services industry and to share with Indian partners The City's
experience of emerging as the leading global financial centre,
including its strengths in professional training and capital markets.
In particular, the Lord Mayor sought to emphasise the benefits
of the UK's liberal market approach and proportionate, principles-based
regulation—elements that the Indian Government will need
to consider very carefully if they are to realise their ambition
to promote Mumbai as an international financial centre.
The Mayoral party visited New Delhi, Kolkata
and Mumbai. With members of his senior business delegation the
Lord Mayor called on five Cabinet Ministers, the Governor of the
Reserve Bank of India, the Chief Minister and Minister of Industry
of West Bengal, and the Mayors of Kolkata and Mumbai. Seminars
on Education, Training and Qualifications (ETQ) were held in each
city. Two round table events focussed on key elements of infrastructure
funding and public-private partnerships (PPP)—in Delhi addressing
the potential use of PPPs in provision of social infrastructure
and in Mumbai on "Risk Sharing—How to finance India's
infrastructure". In Kolkata a broader financial services
seminar put The City's offer on the table under the banner "UK
and India: Partners in Action: Building Financial Capability".
The Lord Mayor also took part in a brainstorming discussion with
senior Indian officials and business representatives on taking
forward the recommendations of the High Powered Expert Committee
(HPEC) report on "Mumbai -an International Financial Centre".
Key outcomes included an important step forward
on the liberalisation of legal services and renewed awareness
among Indian players of the importance of opening up opportunities
to train far more professional accountants. However, the reaction
of Indian Ministers on the prospects for progress in banking and
insurance reforms that had previously been promised was somewhat
discouraging. All of the Lord Mayor's interlocutors were very
interested to learn about how the impact of Big Bang (1986) and
the creation of a single regulator for financial services had
facilitated London's emergence as the world's leading international
finance centre. The City is now well placed to be the Indians'
principal partner as they seek to develop the standing of Mumbai
as a financial centre, although it remains an open question whether
the present government has sufficient domestic support to deliver
the legislative conditions that will be required to make rapid
progress.
The delegation's detailed explanations of how
PPPs have been used to enhance the development of infrastructure
across a range of public services in the UK attracted a lot of
interest from business and government players, although there
was much scepticism about the appropriateness of these techniques
for funding the provision of social infrastructure in India's
current circumstance. The Lord Mayor's visit aimed to raise the
profile of London and the UK as a high quality investment location
and efficient source of capital, and made progress in raising
awareness of the importance of professional training and qualifications
in driving economic progress.
OBJECTIVES
The visit combined a series of business and
wider diplomatic goals:
— Lobby for improved market access
in key financial and professional services sectors;
— Promote London as a global financial
centre offering a world class financial and business services,
LSE/AIM listing, and a European investment hub;
— Explain the UK's liberal approach
to regulation and corporate governance through seminars and workshops,
and encourage India to move in the same direction as it develops
Mumbai as a financial centre;
— Promote the UK as a place of excellence
for business education and professional qualifications by speaking
to the Lord Mayor's Education, Training & Qualifications Initiative
"City of London, City of Learning".
And more specifically:
— To lobby for liberalisation and improved
market access in; Insurance, Banking, Pensions, Securities Markets,
Property/Valuation, Legal and Accountancy Service, both in terms
of policy reform and better implementation
— To explain UK's liberal approach
to regulation and corporate governance through seminars and workshops,
and more generally promote (post-tertiary) education, training
and professional qualifications in financial services provided
by London/UK organisations
— To market what London/UK has to offer
in terms of financial services for Indian companies; attractiveness
as a place to list (including AIM); focus for EU engagement
— To prepare the ground in emerging
economic centres in India (eg Kolkata) as possible targets for
UK financial services companies as liberalisation continues.
OUTCOMES
Legal Services
Both Law Minister Bhardwaj and Finance Minister
Chidambaram argued that the Limited Legal Partnerships (LLP) Bill—which
both expected to pass by the end of this year—would make
a major difference by opening commercial law practice to international
law firms. The Government were hoping to take this forward on
the basis of consensus and with the Bar Council of India's co-operation,
but would legislate if needed. It will be important for UK law
firms to test the practical application of the new legislation
as soon as the LLP Bill is passed.
The Lord Mayor's speech at a Law Society provided
the opportunity to gauge the reaction of legal professionals to
the suggestion of the liberalisation of legal services. The younger
generation of Indian lawyers present were clearly in favour- but
it was evident that the older/family firms were more cautious.
If the LLP Bill goes through—possibly before the end of
the year, certainly in 2008—more tie-ups could follow quickly.
The Law Minister's new demonstration of support was an important
step forward in this respect.
Accountancy and Corporate Governance Issues
Some forward steps on accountancy liberalisation,
though serious sticking points remain. Corporate Affairs Minister
Gupta said that the new Limited Liability Partnerships Bill, which
should be adopted by the end of the year, would allow for an unlimited
numbers of partners and use of international brand names, thus
levelling the playing field for international firms (and building
confidence for local legal firms too). The Institute of Chartered
Accountants of India (ICAI) said that they were willing to cooperate
in discussions to re-establish mutual recognition of accountancy
qualifications (withdrawn by the UK side in 1985 in response to
new EU legislation, and by the Indian side in 1997). Gupta made
it clear that he had no immediate plans to remove the ICAI's self-regulatory
functions—he was confident that their performance would
be further enhanced by revised guidelines in the new Companies
Act.
The Lord Mayor emphasised to the ICAI that the
mutual recognition deal which they seek would need to include
all the UK accounting bodies to meet POB rules. In addition to
the continuing discussions with ICAEW the ICAI thus need to resolve
their long-running dispute with ACCA: excluding them from a deal
was not an option.
Gupta also showed considerable interest in the
UK's model of corporate governance—although his focus seemed
to be more on companies' reporting requirements (where India has
established an impressive electronic filing system that has significantly
improved formal compliance) than the underlying culture of a principles-based
regime relying on effective corporate risk management by individual
companies. The Lord Mayor drew attention to the FRC's work on
this issue (he promised to provide additional copies of their
booklet on the UK's approach), and undertook to offer advice on
the establishment of the planned Indian Institute of Corporate
Affairs.
Banking Liberalisation
All our interlocutors gave clear indications
that, while the roadmap timetable for banking liberalisation will
be respected, retail banking will also be slow to open up: a combination
of conservatism and protectionism is likely to maintain strict
limits on foreign branches even after the current Governor's term
ends in 2008. There will, however, be opportunities to exploit
in areas that are already more open, such as corporate banking—Dr
Reddy advised that overseas players should concentrate on these,
and CoL/UKTI will want to consider emphasising this approach in
the UK's financial services marketing strategy.
Insurance and Pensions
There were pessimistic noises about prospects
for the draft Comprehensive Insurance Bill, which is still stuck
in Parliament due to left wing political opposition. Both Commerce
Minister Nath and Planning Commission Deputy Chairman Montek Singh
chose to link raising the FDI limit in insurance from 26 to 49%
to progress in GATS on India's offensive interests—a new
line of argument, and potentially unhelpful as we move towards
a crucial period in the Doha round where compromise, not new conditions,
are needed. However, Chidambaram was categorical that the Bill,
if passed, would allow Lloyds to provide reinsurance in India.
Regulatory Structures
There were signs from some quarters that discussions
are starting on forming a single regulatory body for financial
services. Finance Minister Chidambaram appeared relatively cautious,
but it received more traction among the financial community in
Mumbai. The experience of the FSA in this field makes the U.K
an obvious interlocutor if the idea gets a head of steam. Fairly
rapid progress on this matter is not unrealistic, given that three
key regulators—of securities, insurance and the central
bank—are all due to retire in 2008, and the role of the
pensions regulator is still being formed.
Mumbai—an International Financial Centre?
In a closed door discussion in Delhi with senior
economic policy-makers, the Lord Mayor and his senior business
delegation detailed the benefits to London of the abolition of
restrictive practices, openness to foreign ownership, separating
monetary policy from banking regulation, and of a principles-based—rather
than rules-based—approach to regulation. Practitioners saw
new opportunities in the development of a corporate debt market
in India, including mezzanine finance, and for raising non-equity
finance in London. Others commented that the deficiencies in Mumbai's
transport infrastructure demonstrated how far the city still has
to go.
The focus, in all three cities, of the Lord
Mayor on professional skills in financial services appeared to
be received enthusiastically. The UK has a great opportunity to
help India address its skills gaps by providing training and educational
services. There was great interest in pursuing the idea of a City
of Learning Financial Education Centre in Mumbai; this will be
taken forward at a major meeting with service providers at Mansion
House in July; Indian Posts will also follow up with individual
delegation members. BHC Delhi is keen that ETQ should be a strong
theme of next year's Mayoral visit also.
Opportunities in Kolkata
Several members of the business delegation were
impressed by developments in Kolkata, which due to local political
factors has been left behind in India's drive towards economic
liberalisation. They found a new energy and confidence in the
Going Global and ETQ seminars that bodes well for future commercial
openings in financial services.
Public Private Partnerships
The visit provided the platform for an intensification
of the UK's dialogue with India on PPP. There is a huge appetite
to learn from the UK experience, but India is still cautious about
greater use of PPP in the social sector. Partnerships UK are now
well established inside the nerve centre of policy development
at the Planning Commission, and are working to build trust with
line ministries like Health and Education (although there is already
significant private sector engagement in medicine & schools—Montek
Singh expressed continuing doubts about the scope for PPP provision
in this area).
In Mumbai, the PPP seminar focused more on existing
and near term business opportunities. UK players are interested,
and there is considerable business potential in advising on risk
sharing and scoping of infrastructure projects—we need to
press harder. PPP could be a theme for a major BDHC conference
in September, notably concentrating on corporate finance for primary
infrastructure—water, energy/power and transport are key
areas (not ports, the upgrading of which is already in hand using
conventional project finance routes).
Maritime Services/Freight Derivatives
The visit highlighted to India's 35 ship-owners
the benefits of using London and the services of the Baltic Exchange—notably
freight derivatives, which cannot currently be traded within India
due to concerns about the non-deliverable nature of the underlying
product. The Baltic was able to press its case with key ministers,
and will be writing to reinforce the argument for a change in
existing regulations that require trading to be in a tangible
deliverable commodity. They are also looking at the case for introducing
a specific index product that could be marketed in India as an
important hedging instrument for Indian maritime risk.
Surveying and Valuation
India currently has no regulatory framework
for surveying and valuation, a lacuna clearly appreciated by the
Corporate Affairs and Finance Ministers. Gupta issued an invitation
to the Royal Institute of Chartered Surveyors to help develop
such a structure; RICS will respond positively in writing—they
see this, and India's associated professional training requirements,
as an exciting opportunity.
Derivatives
The Lord Mayor's party received a briefing from
P Ravikumar, Chairman/CEO of the National Commodities and Derivatives
Exchange, whose rapidly-growing reach and technology impact on
India's 60% agriculturally-focussed population will be profound
and fast. NCDEX is looking to form strategic partnerships in services
and technology (including telecoms) with key international players;
it is important that UK-based players look carefully at this important
opportunity to partner with a growing force in global commodities
trading.
Education, Training & Qualifications
The Indian Government clearly recognises the
importance of upskilling its population and ensuring that sufficient
supplies of professionally qualified individuals are available
to support the growth aspirations of Indian companies as they
increasingly seek to compete on the global scene. There was significant
interest in each of the three cities visited in the quality of
the internationally-recognised qualifications offered by British
institutions, and keenness to cooperate with UK-based training
bodies in delivering these outcomes. Professional training in
insurance was identified by several interlocutors as a particular
gap. Expansion of accountancy training will depend on the early
resolution of ICAI's legal dispute with ACCA. Chidambaram mentioned
a bill currently under consideration by the Ministry of Finance
that would open up provision of professional training—BHC
will pursue.
In Mumbai discussion focused on the Lord Mayor's
proposal for the creation of a City of Learning Financial Education
Centre that might act as a platform/umbrella for UK-based providers
of qualifications and training services. A number of institutions
represented in the business party (including RICS) expressed interest
in being involved. BDHC was keen that this might be a focus for
pilot UKTI funding in association with the British Council. The
Indian authorities' attention was also drawn to the opportunity
to participate in the new International Centre for Financial Regulation
to be established in London
There was a good turnout for the Mumbai launch
of SII's new IT examination, for which 600 students are already
registered. The Lord Mayor noted SII's tremendous progress in
the Indian market, and the scope for further growth. An inaugural
meeting of India-based members of the Chartered Institute of Arbitrators
also went well.
Conclusions
The Deputy High Commissioner in Mumbai said
that the Mayoral visit was an excellent opportunity to show that
the UK has the expertise in a range of key areas, which, if employed
by the Indian Government and Business community, will assist India
in achieving continued economic growth. With this in mind, it
was felt that the trip was effective in providing a platform for
the export of those industries in which the UK has a great deal
of experience, particularly the Financial Services sector.
Ahead of next year's visit, the option of visiting
the commercial capital first should be considered to allow the
direct experience gained from business contacts to be raised with
politicians in Delhi. Early planning will also be critical—the
arrival of a new First Secretary (Financial Services) in Mumbai
will reinforce the specialist capacity already vested in the City
Representative there. It will be important for City stakeholders
to be kept abreast of Indian developments, including the implementation
of the HPEC report. In order to help facilitate this, Mansion
House will look for briefing opportunities when senior Indian
visitors are in London.
October 2007
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