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1Kellogg India Business Conference
1
Mumbai as an Int’l Financial Center:Aspects of the Indian Economy
India Visit 2013George Mason University
January 14, 2013
2
Structure of the presentation
1
2
3
4
Structural transformation of India’s economy
5
How far along are we as an IFC?
Financing sustainable growth
Why do we need a domestic IFC for funds
Where do we go from here?
3
1
2
3
4
Structural change in India’s economy
5
How far along are we as an IFC?
Financing sustainable growth
Why do we need a domestic IFC for funds
Where do we go from here?
4Kellogg India Business Conference
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India has consistently been one of the fastest growing economies, with a high savings rate fuelling investment ...
2.7
2.9
3.3
3.5
4.4
6.4
8.9
0 2 4 6 8 10
Brazil
USA
South Africa
Russia
Poland
India
China
CAGR (1994-08) CAGR (2005-08)
11.0
8.8
5.3
7.3
4.5
2.3
4.4
Growth rates of selected countries%, CAGR
Source: World Bank, RBI
Savings Rates in India and other countriesGross Domestic Savings (% of GDP)
19.3
21.9
26.6
30.0
31.0
32.5
42.3
50.6
51.5
15 25 35 45 55
Phillipines
Japan
Vietnam
S Korea
Indonesia
India
Malaysia
Singapore
China
5Kellogg India Business Conference
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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
47%
56% 53%
67%
95%
114%111%
104%
55%53%
36%
28%
19%23%
62%
48%
0%
30%
60%
90%
120%
1992-93 2001-02 2003-04 2005-06 2007-08 2009-10
Total BOP flows
Trade flows
Financial flows
Source: RBI
6Kellogg India Business Conference
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… with increasing reliance on foreign savings
38
40
42
44
46
48
50
-25
-20
-15
-10
-5
0
5
10
FY01Q1 FY02Q1 FY03Q1 FY04Q1 FY05Q1 FY06Q1 FY07Q1 FY08Q1 FY09Q1 FY10Q1 FY11Q1 FY12Q1FY13Q1
Current account deficit (% of GDP)
7Kellogg India Business Conference
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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
8Kellogg India Business Conference
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The Rupee has been increasingly freed over the past 3 decades, with increasing volatility: sign of more market oriented economy
33
35
37
39
41
43
45
47
49
51
53
55
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
USD/INR
38
40
42
44
46
48
50
52
54
56
58
May-00 May-02 May-04 May-06 May-08 May-10 May-12
9Kellogg India Business Conference
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Has India then become more “coupled”? Yes and No:Initial shock of financial crisis was via global liquidity, but transient
India GDP growth slowdown ...% yoy
... Was mainly due to a foreign funds liquidity shock
54
6
2
0
-4
-5
-1
1
3
56
3
-6
-4
-2
0
2
4
6
8
FY08 : Q2 FY09 : Q1 FY09 : Q4 FY10 : Q3 FY11 : Q2
Short term trade credit ($ bn)
Source: Govt of India, RBI
Transformation of India’s economic structure will create opportunities across multiple sectors …
Services Emerging as pre-eminent growth driver
11Kellogg India Business Conference
11
4654
58
69
5446 42
31
0
10
20
30
40
50
60
70
80
90
100
1991 2001 2008 2030
Share of urban towns in GDP Urban Rural
5.8
8.3
Growth Rate (%)
Urbanisation will not only be a growth driver, but also deepen connections, e.g., through remittances and food supply chains
220 290 340 590
2628
30
40
0
5
10
15
20
25
30
35
40
45
0
100
200
300
400
500
600
700
1991 2001 2008 2030
Urban Population
Urbanization Rate (Rs,%)
P
Urban contribution increasingly important for growth
Source: Mckinsey Global Institute
12Kellogg India Business Conference
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… resulting, within India, an integration between urban and rural, evident in the convergence of consumption patterns
Rural and urban FMCG consumptionRs bns
160
376
67
96
298
13
1995 2005E 2015F
673
256
80
Urb
anR
ural
Source: Che Kothari Studio
Source: McKinsey Global Institute
Over the long term, the India Opportunity Remains Intact… good chance that India will shine in a slowing world
13
Favourable demographics
High Investment Rate Structurally Higher Growth
High Savings rate
14
Yet …we have to learn from success of others!
China had more poor people than India in 1990
0
200
400
600
800
India China
1990 2005
Population living below $1.25 per day (millions)
Source: World Bank
15
1
2
3
4
Structural transformation of India’s economy
5
How far along are we as an IFC?
Financing sustainable growth
Why do we need a domestic IFC for funds
Where do we go from here?
17Kellogg India Business Conference
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Infrastructure funding …
XI Plan infra financing projections (USD billions)
Composition of Infra. funding 1,214
514
1
18
Commercial banks51%
NBFCs incl IIFCL24%
Insurance cos10%
External commercialborrowing
15%
… where banks will retain their re-dominant role, but other institutions will be needed to provide more funds
18
Actual source of funds in the first 3 years of XI Plan (2007-2010)
Share of institutions in private sector debt
Source: Planning Commission
45%
41%
14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007-10
Private Debt
BudgetarySupport
Equity
20Kellogg India Business Conference
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Financial inclusion: leveraging unconventional channels and new technology
3
21
1
2
3
4
Structural transformation of India’s economy
5
How far along are we as an IFC?
Financing sustainable growth
Why do we need a domestic IFC?
Where do we go from here?
22Kellogg India Business Conference
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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
23
1. Traditional Insurance Plans
2. Provident Funds
3. Pension Funds
4. Retail Individuals
5. Trusts
Capital Protection
Steady returns
Investor Segments Key Requirements
Credit Protection / Credit Enhancement
Product Features required
Long Term Retirement Funds1
24
Translating funding potential into flows:Structuring financial products to match risk profiles of investors
24
1. Regular Income MFs
2. Unit Linked Insurance Plans
3. Private Banking Units
4. Foreign Endowments
5. Foreign Insurers
Well-structured asset pools
Diversified and performing cash flows without project risk
Secondary market liquidity
Investor Segments Key Requirements
Securitised cash flow pools
Rated and listed instruments
Product Features required
Fixed Income Investors2
25
Translating funding potential into flows:Structuring financial products to match risk profiles of investors
25
1. Foreign Project Finance Institutions
2. Sophisticated investors (e.g., hedge funds)
3. ECAs / Development Institutions
Viable Projects
Consistency of Policy
Investor Segments Key Requirements
Without recourse project finance
Appropriate risk – reward
Product Features required
High Yield Investors3
26
1
2
3
4
Structural transformation of India’s economy
5
How far along are we as an IFC?
Financing sustainable growth
Why do we need a domestic IFC for funds
Where do we go from here?