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Lost in all the buzz about the ongoing spat between Indian financial exchanges and the Singapore Exchange is the key issue of why investors prefer to manage their equity risks offshore rather than onshore. This is a question worth asking again after the National Stock Exchange moved the courts to prevent the biggest exchange in the Asian city state from offering products based on Indian stock prices to replace the popular SGX Nifty.

It is not easy for a country with high fiscal deficits, high inflation, weak banks and one that is prone to macro panics to completely open up its capital account. However, that is not the only reason. Indian financial regulators have a deep suspicion of products that investors need to hedge their exposures. The result has been the export of part of our capital markets to other locales such as Singapore. The solution is not protectionism, but creating viable alternatives in India. The current spat should not be seen in isolation, but in the context of the new international financial centre that is coming up—with hiccups—in Gujarat.

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