Capital Markets - Making Capital Work for India's Development Needs

29 Oct 2010

Mumbai, India

On October 29th in Mumbai the ICFR participated in a conference on India’s capital markets which had been organised by the British Deputy High Commission on the occasion of the Lord Mayor of London’s trip to India. The Indira Gandhi Institute of Development Research and City of London were also sponsors. The aim of the conference was to provide a forum for discussion of key issues facing Indian financial development and to consider experiences of best practice elsewhere. The conference covered three topics: the changing dynamics of mutual fund distribution, how to make the best use of capital inflows for infrastructure projects, and the incidence of capital controls and impact of these controls on the macro economy. The ICFR supported this conference and its Director of Research, Richard Reid, took part in the final panel session.

One of the key issues which arose in the discussion of the growth of mutual funds was what role should regulation play in the marketing of financial products such as mutual funds to the retail customer. This involves a whole range of problems relating to agent and principal, education, information and fairness. Given the rapid growth of such financial instruments at present and the remarkable rise in the public’s involvement in investing in the capital markets, it became clear that the authorities have no option but to consider a range of policy responses. During the debate on infrastructure investment one strong view expressed was that there was not a shortage of capital for infrastructure finance, more that there was a shortage of bankable infrastructure projects. There may also be problems matching the duration of certain projects with the finance available for these projects which causes particular difficulties for risk management. It was also noted that in some cases an argument could be made for identifying projects which would be particularly suitable for financing from capital inflows.  In the final part of the conference the point was made that India was not alone in applying selective capital controls and that this had been a widespread practice by emerging countries in recent months concerned about financial stability and asset price bubbles. It was also highlighted that the IMF has recently said that in some cases such controls could be justified and other academic evidence suggest that such controls may be most effective in changing the composition of inflows rather than the levels. Many of the controls that India has been considering and applying fall into this category. To guard against instability in the case of sudden stops in capital inflows in the years ahead, it was widely accepted that India aims to deepen and broaden domestic financial markets should be encouraged.

The ICFR is fully committed to supporting a number of initiatives on financial intermediation and regulation in the emerging markets and the Indian economy forms a central element in our research activities. We look forward to developing our links with academics, policy makers and practitioners in India’s financial development and welcome suggestions as to how best we can progress these relationships. 
 

Programme

Welcome by British Deputy High Commissioner, Peter Beckingham*

Keynote Speech by Lord Mayor, Alderman Nick Anstee*

For more information about this event, please email events@icffr.org 
 

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