Why Mumbai won’t be the next London after Brexit
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If there is unanimity on any one issue surrounding Britain’s exit from the European Union, it is the inevitability of London’s decline as one of the two financial pivots of the world along with New York. The City’s predominance in currency trading, insurance and specialized derivatives has been built largely on the free movement of professionals between various European cities. But with the Brexit vote, it faces an exodus of some of these jobs as banks and financial institutions look to move to a place that offers the same mobility.
Already, the suitors to replace London are lining up. Last week, French prime minister Manuel Valls outlined ways in which his country is working to make Paris a more attractive financial centre to rival the City of London. Other cities that companies based in the British capital are planning to leave for include Dublin, Amsterdam and Frankfurt. Sadly, there is no mention of Mumbai which at one time was talked of as an important financial hub. Indeed a Mastercard survey in 2007 had placed Mumbai among the 10 most important financial centres of the world.
Of course, the financial institutions that are thinking of moving out of London will do so only to another European city to take advantage of the “passporting” right that allows their people to operate freely across the EU. But given that financial markets always follow the money as it were, a new financial hub has been on the cards with the growing clout of China and India adding to Asia’s emergence as a driver of global commerce.
With the stakes so high—investment companies based in the UK manage over £5 trillion of assets and employ 35,000 people—there was a case for Mumbai to put its hand up and claim at least some part of the sudden opportunity. After all, Asia is the emerging giant of global finance. Asian emerging markets as a whole are projected to average 6% growth from 2015 to 2020, at which rate they will continue outperforming the rest of the world by a significant margin. Already the Asian Infrastructure Investment Bank (AIIB) set up earlier this year with China and India as founding members is expected to rival the US-led World Bank. That makes Asia’s financial hubs important.
According to the London-based Z/Yen Group’s Global Financial Centers Index (GFCI), which ranks cities based on their attractiveness to financial services businesses, the overall list is headed by London, followed by New York. Significantly, however, it is three Asian cities—Singapore, Hong Kong and Tokyo—which occupy the next three slots. Mumbai is ranked 15 in Asia and 42 overall, though the good news is that it gained 17 ranks and also improved its rating substantially.
The factors it examined include the availability of skilled personnel, the regulatory environment, access to international financial markets, the availability of business infrastructure, access to customers, a fair and just business environment, government responsiveness and the corporate tax regime.
Mumbai does have a lot going for it in becoming a global financial centre—an institutional framework comprising regulators, stable and large exchanges, investment banks and vitally, a rich talent pool. On the flip side, its inability over the years to handle its infrastructure issues, coupled with its high-priced real estate and, of course, the increasing levels of political disruption and intolerance.
The real problem of course is that India has singularly failed to leverage its position as the processing backroom of the world for financial services into anything more substantive. Today, global banks and insurance companies contribute 25-40% of the revenue at top technology companies. Banking, financial services and insurance (BFSI) as a category accounts for over 40% of revenues for both Tata Consultancy Services and Cognizant, while it brings 33.5% of total business for Infosys Ltd and constitutes 26.2% and 26.6% of total revenue at Wipro Ltd and HCL Technologies, respectively. That gives India the necessary “mind share” among global financial corporations as well as the platform to learn the front end skills as well.
However, even as the government from time to time kept making noises about turning Mumbai into a financial services centre, even setting up a High Powered Expert Committee (HPEC) under Percy Mistry to look at that possibility, it failed to see the connection between the physical infrastructure of a global financial centre and the skills already present in the form of data and transaction processing by the business and knowledge processing powerhouses.
The committee’s 2007 report titled “Making Mumbai an International Financial Centre” (MIFC) notes, “Intuitively, moving up from BPO/KPO to a fully fledged IFC is analogous to moving up from low-end programming to replicating Silicon Valley. Incremental progress in the Indian IT industry will not bring Silicon Valley to India; that requires a quantum leap. Similarly, doing more BPO/KPO for the global financial services industry will not, as a matter of course, result in India automatically graduating to providing IFS through natural evolution.”
Consequently, Mumbai and India will continue to languish in the rain shadow of the global financial services bonanza. And as Amsterdam or Paris or even Dublin emerge as front-runners to grab a share of the business that exits London, India will continue to mop up the pennies that come from playing backroom to this business.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.