1 kellogg india business conference 1 mumbai as an int’l financial center: aspects of the indian...

1Kellogg India Business Conference

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Mumbai as an Int’l Financial Center:Aspects of the Indian Economy

India Visit 2013George Mason University

January 14, 2013

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Structure of the presentation

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2

3

4

Structural transformation of India’s economy

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How far along are we as an IFC?

Financing sustainable growth

Why do we need a domestic IFC for funds

Where do we go from here?

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1

2

3

4

Structural change in India’s economy

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India has consistently been one of the fastest growing economies, with a high savings rate fuelling investment ...

2.7

2.9

3.3

3.5

4.4

6.4

8.9

0 2 4 6 8 10

Brazil

USA

South Africa

Russia

Poland

India

China

CAGR (1994-08) CAGR (2005-08)

11.0

8.8

5.3

7.3

4.5

2.3

4.4

Growth rates of selected countries%, CAGR

Source: World Bank, RBI

Savings Rates in India and other countriesGross Domestic Savings (% of GDP)

19.3

21.9

26.6

30.0

31.0

32.5

42.3

50.6

51.5

15 25 35 45 55

Phillipines

Japan

Vietnam

S Korea

Indonesia

India

Malaysia

Singapore

China


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India has become more integrated with the global economy, with share of both trade and financial flows in GDP having doubled

BOP flows account for over 100% of GDP % of GDP

47%

56% 53%

67%

95%

114%111%

104%

55%53%

36%

28%

19%23%

62%

48%

0%

30%

60%

90%

120%

1992-93 2001-02 2003-04 2005-06 2007-08 2009-10

Total BOP flows

Trade flows

Financial flows

Source: RBI


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… with increasing reliance on foreign savings

38

40

42

44

46

48

50

-25

-20

-15

-10

-5

0

5

10

FY01Q1 FY02Q1 FY03Q1 FY04Q1 FY05Q1 FY06Q1 FY07Q1 FY08Q1 FY09Q1 FY10Q1 FY11Q1 FY12Q1FY13Q1

Current account deficit (% of GDP)


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Indian corporates have expanded their presence in overseas markets, for increasing scale and access to technology ...

Market Access / Scale /Branding

Raw materials /Energy

Knowledge /Technology


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The Rupee has been increasingly freed over the past 3 decades, with increasing volatility: sign of more market oriented economy

33

35

37

39

41

43

45

47

49

51

53

55

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

USD/INR

38

40

42

44

46

48

50

52

54

56

58

May-00 May-02 May-04 May-06 May-08 May-10 May-12


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Has India then become more “coupled”? Yes and No:Initial shock of financial crisis was via global liquidity, but transient

India GDP growth slowdown ...% yoy

... Was mainly due to a foreign funds liquidity shock

54

6

2

0

-4

-5

-1

1

3

56

3

-6

-4

-2

0

2

4

6

8

FY08 : Q2 FY09 : Q1 FY09 : Q4 FY10 : Q3 FY11 : Q2

Short term trade credit ($ bn)

Source: Govt of India, RBI

Transformation of India’s economic structure will create opportunities across multiple sectors …

Services Emerging as pre-eminent growth driver


11

4654

58

69

5446 42

31

0

10

20

30

40

50

60

70

80

90

100

1991 2001 2008 2030

Share of urban towns in GDP Urban Rural

5.8

8.3

Growth Rate (%)

Urbanisation will not only be a growth driver, but also deepen connections, e.g., through remittances and food supply chains

220 290 340 590

2628

30

40

0

5

10

15

20

25

30

35

40

45

0

100

200

300

400

500

600

700

1991 2001 2008 2030

Urban Population

Urbanization Rate (Rs,%)

P

Urban contribution increasingly important for growth

Source: Mckinsey Global Institute


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… resulting, within India, an integration between urban and rural, evident in the convergence of consumption patterns

Rural and urban FMCG consumptionRs bns

160

376

67

96

298

13

1995 2005E 2015F

673

256

80

Urb

anR

ural

Source: Che Kothari Studio

Source: McKinsey Global Institute

Over the long term, the India Opportunity Remains Intact… good chance that India will shine in a slowing world

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Favourable demographics

High Investment Rate Structurally Higher Growth

High Savings rate

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Yet …we have to learn from success of others!

China had more poor people than India in 1990

0

200

400

600

800

India China

1990 2005

Population living below $1.25 per day (millions)

Source: World Bank

15

1

2

3

4


5





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The financial sector will be a critical enabler for sustainable growth …


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Infrastructure funding …

XI Plan infra financing projections (USD billions)

Composition of Infra. funding 1,214

514

1

18

Commercial banks51%

NBFCs incl IIFCL24%

Insurance cos10%

External commercialborrowing

15%

… where banks will retain their re-dominant role, but other institutions will be needed to provide more funds

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Actual source of funds in the first 3 years of XI Plan (2007-2010)

Share of institutions in private sector debt

Source: Planning Commission

45%

41%

14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007-10

Private Debt

BudgetarySupport

Equity

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SMEs: Entrepreneurs with cash balances and falling leverage will create growth opportunities

2


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Financial inclusion: leveraging unconventional channels and new technology

3

21

1

2

3

4


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Why do we need a domestic IFC?



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What does an IFC do? Matching investors with financing risks

Facilitate funding

– Matching risk profile of credit with investors

Manage risks

– Global workforce expanding at rate slower than job creation

Manage the development of an ecosystem

– Legal, accounting, consulting

Technology

– New products and product delivery mechanisms

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Translating funding potential into flows for infrastructure:Structuring financial products to match risk profiles of investors

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1. Traditional Insurance Plans

2. Provident Funds

3. Pension Funds

4. Retail Individuals

5. Trusts

Capital Protection

Steady returns

Investor Segments Key Requirements

Credit Protection / Credit Enhancement

Product Features required

Long Term Retirement Funds1

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Translating funding potential into flows:Structuring financial products to match risk profiles of investors

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1. Regular Income MFs

2. Unit Linked Insurance Plans

3. Private Banking Units

4. Foreign Endowments

5. Foreign Insurers

Well-structured asset pools

Diversified and performing cash flows without project risk

Secondary market liquidity


Securitised cash flow pools

Rated and listed instruments


Fixed Income Investors2

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Translating funding potential into flows:Structuring financial products to match risk profiles of investors

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1. Foreign Project Finance Institutions

2. Sophisticated investors (e.g., hedge funds)

3. ECAs / Development Institutions

Viable Projects

Consistency of Policy


Without recourse project finance

Appropriate risk – reward


High Yield Investors3

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2

3

4


5






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Thank You

1 kellogg india business conference 1 mumbai as an int’l financial center: aspects of the indian...

Documents

govt of india

india opportunity

gdp slide

indian economy india

rbi slide

growth source

world bank slide

global economy