India’s BQ: A Financial Superpower In An Uncertain World, By Rashesh Shah

This is a series of articles by leaders on how India can raise its Business Quotient.

Historically, India has been equated to a lumbering elephant – clumsy, slow and often, lagging behind. However, these historical notions of India are a far cry from the India of today. The India of today might still be an elephant but it is an elephant that is nimble, fast and adaptable to change, at the same time continuing to gain significantly in size and influence. The underlying focal point of this change has been our sustained gross domestic product growth which continues the northward movement, despite the increasingly larger base. It is no surprise then that though the Indian economy was expected to overtake Great Britain in 2020, the surpasso has already happened, albeit accelerated by the decline in the value of the pound. Considering the $2 trillion+ behemoth that we have already become, and the phenomenal rate of our growth, we could see India's GDP at $5 trillion by 2025 and $20 trillion by 2040, easily among the top three economies in the world at that point of time.

Geopolitical Stability

The India growth story is just one side of the narrative. The geopolitical situation in South-East Asia will form another critical axis in determining the role India could play, as a regional and even a global financial hub. To say that South-East Asia is one of the growth engines of the world would not be an understatement. Be it India, Indonesia, Singapore, Thailand or even – despite its recent slowdown – China, some of the fastest growing economies in the world in the recent past have emerged from here. However, India stands out among this crowd not only because of its bigger size (barring China) but also the stable democratic political environment that is fostered in India.

Creating World-Class Financial Architecture

With the alignment of these key factors, India is primed to play a major role in the global economic environment. However, to truly achieve its full potential as a financial hub, India has to be at par with the global financial hubs of today, be it Singapore, New York or London. This parity has to come not only in terms of facilities, infrastructure, and human capital but most importantly, in terms of a well-developed and open financial ecosystem that is attractive enough for investors, yet well-regulated to protect against any meltdowns. This can be achieved only through a financial governance architecture that is amenable to global ‘best-in-class' practices and standards. The current reformist agenda – including Jan Dhan, the Goods and Services Tax, the Bankruptcy Code, and demonetisation – has set the base for positive, structural changes in the economy.

The most critical and important of these larger reforms has to be on taxation. GST has created a new paradigm in the taxation ecosystem of the country. At the same time, while foreign direct investment into India has been scaled up substantially, the appetite remains significantly larger. The biggest worry and fear in the minds of most foreign investors revolves around the taxation policy applicable on their investment and the varied interpretations it can undergo.

There is a need for a well-articulated taxation policy that can be uniformly applied across the board, and not on a case-to-case basis.

Clarity on the taxation policies could significantly improve the investment climate in India.

The government has also been very serious about improving India's ranking in ease of doing business. While some steps have been taken, much else needs to be done, particularly to reduce the bureaucracy involved in getting clearance from various official outlets. By streamlining the process and providing a single-window clearance mechanism, a significant improvement can be achieved in this regard.

Equally importantly, the regulators, along with the government are working on improving the depth as well as the breadth of the financial markets in India. An evolved financial market, to some extent, is characterized by the entire spectrum of liquid markets in all segments, be it equities, derivatives, bonds, commodities or currencies. The bond-currency-derivatives nexus is the key element we need to build on, ensuring vibrant price discovery and efficient markets.

While this might not be a feasible option at the current size of $2 trillion, a $5 trillion economy provides sufficient cover to guard against short-term speculative movements.

The way I see it, India has all the ingredients required to become a global financial hub of the future. What is required is to create an enabling and conducive economic environment that can utilise India's core strengths to create a distinctive competitive advantage. This has to be achieved through a variety of government and regulatory reforms, some of which are already underway. With this combination of reforms and the India hinterland growth, we are well on our way to becoming a global financial superpower.

Rashesh Shah is Chairman and CEO, Edelweiss Group.

The views expressed here are those of the author's and do not necessarily represent the views of BloombergQuint or its editorial team.