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Reforms required to make India world class

Stuart Fraser
CITYA.M. readers struggling with the end of the UK winter won’t want to hear I am in India. My business on your behalf is strengthening ties with India’s financial services community, but the hot topic with locals on the street is the Indian Premier League. The remarkable success of this cricket tournament, which only got off the ground in 2008, exemplifies the entrepreneurial spirit, flexibility and commercial know-how that are a big feature of Indian life.

India, like China, will play a crucial role in driving the global economy forward during the 21st Century and beyond. But the massive growth of Indian businesses both domestically and overseas has not yet been matched by changes in its financial services infrastructure. Mumbai has the potential to become an investment gateway to Asia, not just India. But long-awaited reforms in areas such as pensions, banking and insurance are essential before India can boast a world-class financial services centre. In our most recent Global Financial Centres report, it slipped to 58th place – and 14th in the Asian rankings.

The City of London is working to build relationships with Indian decision makers and business leaders so that we are part of this discussion on reform and development of the financial sector. Last week’s decision by the government to open India’s doors to foreign universities was a step in the right direction. As a result of this proposal, British universities will be able for the first time to enter the Indian educational marketplace and help meet the demand from thousands of students. Working alongside domestic providers, this will help build the pool of domestic talent needed to ensure India’s financial services sector thrives in future. The benefits of a more inclusive and open approach are well documented. For example, it is estimated that over 3m new Indian jobs have been created in the insurance sector since it first opened up in 1999, with scope for similar growth in legal and other professional services. The City can help realise this vision.

Closer to home, I was pleased to see decisions on the AIFM Directive have been delayed. As I told EU policy makers in Brussels last week, further work is needed on this draft before it becomes law. It is important we get this issue right by factoring in the current regulatory environment outside of Europe. That is why next month’s G20 Summit is the perfect forum for further discussion – especially given US Treasury secretary Tim Geithner’s recent intervention into debate.

Concerns that the directive could potentially damage funds on both sides of the Atlantic are real. As Geithner says, any new regulation should “maintain a level playing field” by ensuring international funds have access to the European market and vice versa. Protectionist legislation runs the risk of retaliatory action from other jurisdictions. This would be disastrous for all involved.

Stuart Fraser is Policy Chairman of the City of London Corporation.