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3 October 2013, Gateway House

Raghuraman Rajan: Making Mumbai great again

Earlier in September, Raghuram Rajan took over as Governor of the Reserve Bank of India for three years. While his entry has indeed alleviated the gloomy market environment in Mumbai, there’s more that needs to be done. How can Mumbai reclaim the natural cosmopolitan and intellectual legacy it once boasted of?

Bombay History Fellow

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The recent appointment of Raghuraman Rajan as governor of the RBI has brought plenty of timely cheer to the capital and currency markets, in the country’s financial center of Mumbai.

Though the Governor’s primary focus is on inflation, some fundamental changes are in the offing for the financial markets. These include the implementation of two High Powered Committee Reports – The 2007 Percy Mistry Report on making Mumbai an International Financial Center (IFC) and the 2008 Raghuraman Rajan Report (2008), euphemistically called the `100 small steps.’

Both reports have been on the back burner, apparently waiting for the right time to make an appearance. Now they may be ready to make their debut – whether for political expediency or just economic urgency – and it is none too soon.

Mumbai is the financial capital of India and has been so for the last 150 years. It is home to the oldest stock market in Asia, the Bombay Stock Exchange (BSE); to the oldest central bank in Asia, the Reserve Bank of India, and home to some of the oldest banks in the country that were known as Exchange Banks and which facilitated India’s vast foreign trade.

The BSE, which began as an informal gathering of native Indian brokers dealing under the shade of a banyan tree (which still stands near the well of the Horniman Circle Gardens) in the 1840s, dealt in the shares of the few cotton textile, cotton pressing and ginning companies that then existed. Trades were settled in the 8-day cycle with forwards in the one-month cycle. Today, the BSE not only settle trades in real time but also is the world’s largest exchange by number of companies listed. In terms of market capitalization, it ranks 11th globally.

Since 2008, the BSE has made huge strides in developing a range of indices for derivatives, corporate debt, EUREX, and more recently the BRICS Index.

The next step is to leap into the international sovereign/corporate bond-equity-currency-derivatives market, with its supporting banking and financial services. Here also, Mumbai has a precedent. During the American Civil War (1861-1865), entrepreneurs like Sir Jamsetjee Jeejeebhoy, Premchand Roychand, David Sassoon, and numerous other Indian merchants floated numerous banks, financial institutions, and real estate companies to enable the export and bridge the severe shortage of cotton in the global markets.

Mumbai’s greatest advantage is its geographical location, strategically placed between Tokyo and London, giving it a good five hours of trading time with London. There are international financial centers like Singapore (a center for ASEAN); Shanghai (for China), and Dubai (which services West Asia); Mumbai is a natural addition to this international list. The city can easily be a financial gateway for Karachi, Dhaka, Male and Colombo, as also for East and South Africa where the strong, commercially oriented Indian diaspora is an opportunity waiting to be aggressively pursued. Some of these families like the Madhvanis, Mehtas (actress Juhi Chawla is married into the Ugandan Mehta family), and Rajanis, have had homes and offices in the city for at least three generations.

It isn’t too far-fetched to consider that the much-touted Cairo to Cape railway line can be funded by sovereign bonds structured and floated in Mumbai and denominated in Indian rupees, once it is in free-float – a key point of both reports.

As for the Indian rupee – barely a hundred years ago, it was the most international of currencies, being legal tender in East Africa, Mauritius, Sri Lanka, the Indonesian islands and West Asia. It was exactly half the value of the Maria Theresa Thaler, a silver coin then used in international trade, which made converting easy. The rupee’s especially wide reach was largely due to Indian immigrants in the early 19th century.

Till very recently, the Reserve Bank of India issued Gulf Rupees, in distinctive bright colors and in the alphanumerical series beginning in Z. Oman was the last of West Asian country to shift to its own currency in 1970.

Overlooked by the two reports is a key activity that has in the past, and can in the future, make Mumbai internationally significant: philanthropy. City merchants have funded the construction of the Rajabhai Clock Tower, the University Convocation Hall, Elphinstone College, the Institute of Science, C.J. Hall (now the National Gallery for Modern Art), David Sassoon Library, the J.J. Colleges, the Tata Theatres, and even hospitals like J.J, Gokuldas Tejpal, and Tata Memorial. Given that Mumbai is today home to 24 billionaires ( according to Wealth Insight’s 2013 survey), ranked No. 7 of the top 10 countries in the world on this score, it can surely once again ensure that its philanthropists play a major role in building the educational, cultural, artistic and intellectual life of the city.

The DNA of the city is encoded in numbers and finance. Its local merchants underwrote the losses made by the East India Company in Bombay for years, just in order to facilitate trade. Their resilience and initiative then to changing global markets and needs, makes Mumbai ideally suited to be an International Financial Centre.

What is needed for Mumbai to regain its international status and financial reach, and to power India’s global engagements, is sound capital markets. As the Percy and Rajan Committee Reports begin to be implemented, the other virtuous elements will come into play, like political transparency, a time-bound judicial system, a rapid physical infrastructure build-out and good municipal governance.

Only then will Mumbai reclaim its natural cosmopolitan and intellectual legacy, becoming once again Primus Inter Pares with the world’s other great cities.

Sifra Lentin is the Bombay History Fellow at Gateway House: Indian Council on Global Relations, Mumbai. Her paper, Mumbai’s International Linkages: Then and now, will be released shortly.

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