This week, a young man in Mumbai lost his only productive assets—a few glasses and some lemons placed on a tray—in a raid by municipal authorities. The illegal lemonade hawker was punished, his property confiscated, in the few seconds it took for my car to pass the scene.
A front-page story in Indian newspapers the same day was about the city receiving a glowing endorsement from MasterCard Inc. The credit card company’s inaugural survey of worldwide centres of commerce puts Mumbai—the only Indian city in the top 50—at a lowly 45th position.
However, one of the six subcategories of the survey is “financial flow”. On that metric, according to the survey, Mumbai was in 10th place, ahead of Shanghai, Hong Kong, Sydney, Singapore and Zurich.
The survey confirms something that millions of immigrants coming to Mumbai from the Indian hinterland, Afghanistan and Iran have known for centuries: there’s money in the air here. And yet, most people in this city of rich businessmen, famous movie stars and shadowy hit men, are like the young lemonade seller. They can see the money, but never catch it.
How does one make the benefits of financial flows trickle down to those who are undereducated? How does one do it when the Indian state is fiscally and managerially too weak to transfer incomes to—or create opportunities for—the have-nots? Here’s a wacky plan: turn Mumbai into a special administrative region like Hong Kong.
City of traders
If Mumbai’s economy could engage with the rest of India through a “one country, two systems” mechanism, similar to the arrangement Hong Kong has with China, it would lose the baggage of national policies and politics that hold it back.
Mumbai, like most ports, is an opportunistic city. In the 1860s, traders of Bombay, as the city was known then, made millions of dollars trading off the American Civil War. The animal spirits, crushed by four decades of botched Soviet-style socialism, are rising once again. Now the city is exploiting the economic growth in its backyard.
The cash segment of the Indian equity market has traded $2.7 billion (Rs12,420 crore then) worth of shares daily over the past year, while futures and options averaged $8.4 billion a day last month.
Commodity derivatives generated business worth $6 billion a day in May, whereas bonds added another $3 billion. The currency markets are transacting about $16 billion daily, according to the latest data. That’s a sixfold jump from five years ago.
$100 billion economy
Throw in the money market, and you’re looking at a total daily financial flow of $37 billion. MasterCard has followed a somewhat different methodology. It has looked at the number of transactions, rather than their value. Either way, if it were made legally impossible for state and Union governments to hijack through taxation the value added in Mumbai’s financial trading, that could work wonders.
If the denizens and local government of Mumbai got to keep just 0.1% of the flow as their incomes, they would have well in excess of $10 billion a year. Income from banking services, insurance, fund and wealth management, and real estate should easily double that figure.
Then there are port activities, wholesale, retail, construction, hospitality, tourism, education, health care, entertainment, utilities and transportation. All of that together would, if Hong Kong is any guide, create five times the value added in the financial, insurance, real estate and business services, and Mumbai would have a $100 billion economy. The 19 million people who live in the city and its suburbs would have a per capita income of $5,000 a year, or eight times India’s average. The local government would get enough taxes to manage the city’s staggering income inequality.
How would the rest of India manage without taxing Mumbai? The answer may once again come from Hong Kong and China: one country, two currencies. Let there be a Mumbai dollar, set much higher than the rupee’s exchange rate of 40.7 to the US dollar. It would float freely and be fully convertible, removing one of the big hurdles in turning the city into a global financial centre.
The rest of India would continue with the heavily managed rupee, which, I suspect, would then depreciate. That would be a boon for exporters, who are unhappy with the steep rise in the home currency this year. A weak rupee would attract foreign investments into labour-intensive, export-oriented industries.
By creating jobs for their swelling ranks of youth, the laggard states in northern India would reduce their considerable risk of crime and unrest. This is all just a pipe dream, and a blatantly mercantilist one at that.
The International Monetary Fund would never allow it. Nor would India, which is reluctant even to have multiple time zones, let alone currencies.
If you have a workable suggestion that could be implemented by a weak coalition government, write to Prime Minister Manmohan Singh.
The challenge is to induce Mumbai’s lemonade sellers to go back home to the hinterland and find work in modern factories, where they have access to a larger amount of capital that’s also better protected by property rights than their drink stalls ever will.