Snow Recommends Further Liberalisation Of The Indian Finance Sector

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

11 November 2005

Speaking in Delhi on Thursday at a talk hosted by the Federation of Indian Chambers of Commerce and Industry, the American Chamber of Commerce, and the US-India Business Council, US Treasury Secretary John Snow stressed the need for a strengthening of the relationship between the two countries, observing that:

"Our bilateral economic engagement has also expanded significantly in the last decade to the benefit of both India and the United States. Both America and India rely on private enterprise to generate economic growth. America is India's largest trading partner. I was told a remarkable fact this week in meetings with Indian investors that about 80% of private equity funds in India come from the United States."

He continued:

"Foreign direct investment has been growing in India. But it's important to recognize that the potential here has only been glimpsed. Looking ahead 15-20 years, the U.S-Indian economic relationship should become a key pillar of strength for both our countries and for the global economy."

Mr Snow added that:

"Real progress has also been made in India's equity markets. Earlier this week I visited the National Stock Exchange and the National Commodities and Derivatives Exchange. I was greatly impressed by the talent and technical capacity of these very important markets. They will add immeasurable value to the Indian economy and play a significant role in directing capital to its best uses. It is this combination of dynamism and efficiency that help to create growth and prosperity," and continued:

"In my view, additional liberalization of the Indian financial sector would also go a long way towards addressing India's pressing needs. In the banking sector, for example, allowing for more engagement by foreign banks would add capital to the banking system, spread credit availability, bring in additional managerial expertise and technology, and result in more capital being channeled to more productive investments."

"Some may argue that Indian banks are not prepared for global competition. But India's banks have made substantial improvements in their risk management abilities, and many of the banks are eager to expand abroad to prove their competitiveness. In a similar vein, liberalization of Indian markets in insurance, pensions, and fund management would lead to the development of new sources of capital, provide new services for consumers, and deepen India's domestic capital markets."

"India's insurance industry is an example of the positive effects of competition. Liberalization has led to impressive growth in insurance markets. In 2004, Indian insurance companies mobilized over $21 billion, nearly three times as much as in 1999. This kind of capital mobilization provides crucial resources for investment in infrastructure, businesses, long-term bonds, and municipal projects. I welcomed the move yesterday to allow more foreign investment in asset recovery companies."

The US Treasury Secretary also observed that:

"Part of strengthening the financial sector involves protecting it from abuse from criminals and potential terrorists. India has taken a significant step forward this year with the enactment of the Prevention of Money Laundering Act. To meet international standards, India will need to aggressively implement its provisions and address some deficiencies that hamper its effectiveness. In addition, proper regulations need to be developed for informal financial systems such as hawala as risks for illicit financial facilitation in this sector remain high."

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