Second India-Eu Business Summit
November 22-23, 2001, New Delhi

Welcome Address by Shri R S Lodha, President-elect, FICCI

Mr. C.M. Vasudev, Secretary, Department of Economic Affairs, GOI
Mr. N. Rangachary, Chairman, IRDA
Mr. G.N. Bajpai, Chairman, LIC
Ms. Naina Lal Kidwai, Vice-Chairperson, JM Morgan Stanley
Mr. Ashvin Parekh, Partner, Arthur Andersen
Mr. Jonathen Lyon, CEO, BNP Paribas
Mr. Ton van der Star, CEO, ING Vysya Life Insurance Ltd Friends

A very warm welcome to all of you

It is our pleasure to have with us today Mr. Vasudev who has kindly agreed to chair this session despite his busy schedule. There could not have been a better representative from the Government of India and it is our privilege that he will today share with us his vision of the Indian Financial Sector. My special thanks once again to Mr N Rangachary who has been kind enough to be with us whenever we have needed his presence.

This is an opportune time to organize a Business Summit of this nature. The world economy is reeling under a severe recession. The US economy after a decade of spectacular growth is now spiraling downwards. The European Union is still coming to terms with the new financial regime while Japan is yet to come out of depression. In such testing times it is heartening to know that India remains among the fastest growing economies in the world with an expected GDP growth of 5% this fiscal.

The Indian Financial sector is one of the sunrise sectors, which I believe holds great future for India. If nurtured carefully it has the potential to put India on the world map as a hub of global financial activities.

India's GDP is expected to grow at the rate of 6 per cent per annum and by 2007-08 will cross the trillion dollar mark. Financial assets constitute almost 12 per cent of the GDP now. Assuming they remain at the same level, the actual figure would cross $120 billion by 2007-08 up from $ 56 billion in 2000-01. Thus the potential of India's financial sector would be more than double in next few years.

The strength of financial sector in a country is also dependent on its human capital. India's potential in this regard is evident from the fact that several CEOs of Indian origin are leading the financial organisations across the globe. I invite European businesses to take a closer look at this opportunity presented by a rapidly growing market, which also has an abundance of skills and human capital.

The winds of change have swept the shore of the Indian banking system since the deregulation of the industry in 1991. Three of these changes, which will have a significant bearing on the future of the Indian Banking are :

• Growing competition from within and outside,
  
• Technological upgradation, and
  
• Enhanced supervision and monitoring.
  

Newer opportunities have emerged in the form of net and mobile banking and retail banking which will change the face of Indian banking in the near future. New products like Credit Cards, Debit Cards, Smart Cards etc. are emerging as areas of rapid growth. Card issuers are heavily promoting debit cards in a bid to discourage the need for carrying around paper money.

I would urge my European friends to assess the potential in these areas, particularly because the RBI has decided to allow greater foreign equity in Indian private banks.

Insurance is one sector, which holds great future in India. The market is vast and there is a lot of cushion for new entrants to operate alongside our public sector giants viz. LIC & GIC.

The industry is expected to grow at an average annual inflation adjusted rate of 7.6% and 14% in the non-life and life segment respectively.

I would like to record our appreciation of the work done by IRDA, whose exemplary contribution has made the privatization of the Insurance Industry a reality.

In fact the largest number of registered players in the segment are from EU countries and surely Indian market will benefit a lot in terms of superior technology, improved customer servicing and newer products.

Pensions, is another crucial sector which has assumed critical dimensions in the past few years. According to the 1991 census report, out of an estimated 314 million workers in India, only 34 million are covered by any formal old age security system. The figures are indicative of the huge market that remains to be tapped.

IRDA has recently submitted a report to Finance Minister which lays down a roadmap for the opening up of this sector. Once that happens another tremendous opportunity would emerge for new players.

The success of the insurance and the pensions' sector depends largely on the performance and efficiency of the capital markets. In a short span of time the Indian stock market has covered a long distance. It has come a long way from the old days of floor trading to the new and sophisticated screen and net based trading system.

The introduction of depositories, rolling settlement, derivatives, margin trading, a uniform trading cycle and increased participation of FIIs have not only contributed to the operational efficiency of the market but have also expedited the process of integration of the Indian capital markets with the global financial system.

The Market Capitalisation to GDP ratio in India is presently less than 30 per cent and with large international players active in the market this figure is likely to reach a level of over 60 per cent in the coming years. This is a trend observed in other emerging markets. And if we are looking at a trillion dollar GDP by 2007-08, the prospect for growth is indeed exciting.

As I mentioned earlier about Economy growing at a rate of 6 per cent per annum and becoming a trillion dollar economy in a 7-8 years time, it is obvious that the potential is tremendous.

The Indian debt market has begun to show promise and is poised for rapid growth in the days to come. The decision to set up a single clearing corporation for money, debt and foreign exchange and the provision to hold securities in dematerialized form are all positive steps towards the deepening of the secondary debt market.

Today, more than 99.5% of the settlements in the NSE & BSE take place in demat form.

I have no hesitation in saying that the Indian capital markets are as competitive as their Western counterparts. For example, NSE ranks among the best in the world in terms of number of trades, recording on an average 1 lakh trades per hour. Even in terms of pricing, efficiency and liquidity, Indian markets are definitely globally competitive.

Certain new developments are taking place in the Indian financial sector, perhaps our friends from EU could share their experience with us on :

• Choice between Single and Multiple Regulator
  
• Universal Banking
  
• Consolidation of the Banking Sector, etc.
  

I am sure our friends have some issues like limited foreign participation in insurance sector, restrictions on expansion of foreign bank branches etc. Perhaps this summit will give them an opportunity to have clarity on these issues.
European Union is doubly important for the Indian financial sector. First, as a source of capital which Indian companies raise from abroad to finance their growth. Second as a source of foreign investment in the financial sector. I am confident that this current session will put in place a strategy that will enable Indian and European financial players to enhance their collaboration.

May I now request Mr. C.M. Vasudev to kindly make his observations.

Thank you.