"Where you Stand Depends on Where you Sit"

The ICFR India Launch 8 February 2010, Mumbai

Written by Barbara Ridpath, CEO of the ICFR

The International Centre for Financial Regulation (ICFR), a research institute for independent thinking, research and training on financial regulation, jointly sponsored by public and private sector sources, introduced itself to the business, regulatory and academic community in India on 8 February 2010 in Mumbai. As co-sponsors of the Brookings Institute and ABDI programme on Financial Architecture in Emerging Markets, the ICFR joined the conference on Financial Sector Regulation and Reform in Asian Emerging Markets. At the end of the day the Foreign and Commonwealth office co-sponsored the ICFR launch featuring Deputy Governor of the Reserve Bank of India, Subir Gokarn.

As Barbara Ridpath, Chief Executive, said in her opening remarks, ‘We have come here to learn.’ And learn we did.  In particular, it became clear that 4500 miles of separation from the centre of the financial maelstrom actually provides a clarity of vision that only distance can bring. Many of the Indian based conference participants had a far clearer perspective on the causes and lessons of the crisis than their counterparts much closer to the centre.

It was also clear that the relative speed of ‘financialisation’ of the economy in India that had been perceived by some as an impediment to develop was increasingly being considered an advantage, having saved the Indian economy and their financial system from the ravages experienced elsewhere. As Dr. D.K. Chakrabarty, Deputy Governor of the Reserve Bank of India said in his speech to the International Banking Summer School on 31 August 2009, ‘The fact that so far financial sector reforms have been calibrated with a progressive integration into the world economy has paid us rich dividends. A key consideration in the choice of pace and sequencing has been the management of volatility in financial markets and implication for the conduct of monetary operations.’ Deputy Governor Gokarn himself summed up the functional objectives of the Indian financial system clearly in his speech: efficiency, stability, transparency, inclusion, and sustainability.

There still remains enormous work ahead if the Indian financial system is to prove fit to meet the country’s infrastructure needs, and the needs of its rapidly growing corporate sector. Nonetheless, it is also apparent that the issues, be they the provision of financial services to the ‘unbanked,’ the development of a genuine rupee yield curve to help deepen the government and corporate bond markets, or the deepening of the consumer insurance market, will be considered and debated in light of their utility, their ability to contribute to the functional objectives for the financial system and their contribution to the development of the real economy. This makes the road map far clearer in India than in many other economies.

Sometimes, you have to put some distance between yourself and a problem to see it more clearly. In this case, it is clear that Europe and the US could also benefit from a debate on what they want from their financial systems before they begin to attempt to repair them.

In a similar vein, seen from Europe and the US, the debate on ‘exit strategies’ from monetary and fiscal stimuli, takes on a very different character than it does when seen from the perspective of the emerging economies. While the West worries about how to reduce stimulus without also stopping growth, faster growing Asian economies must tighten monetary policy faster to avoid inflationary tendencies. This gives rise to interest rate differentials likely to cause a resurgence of carry trades and thus foreign capital inflows that could themselves affect local inflation and exchange rate prospects. Thus, managing growth and interest rate differentials exiting the crisis has very different and difficult implications, when viewed from the East, instead of the West.

The ICFR looks forward to instigating events where we can continue to engage practitioners and experts from around the world in debates on best practice in financial services, and what we have to learn from each other. We look forward to working with new partners in India in the ICFR’s research, training and thought leadership.