A perspective on Mumbai’s

strengths

13
In contemplating the creation of an  in can take place with transacting coun-
India, the metropolis of Mumbai, backed terparties from Tokyo to London i.e.,
covering all of Asia, the  and every-
by the human resources of India as a whole,
has six manifestly visible strengths: where in between. While the Americas chapter
are beyond daytime conversations with
. Hinterland advantage: Mumbai is the Mumbai, the experience of  services,
financial and commercial capital of / and call centre industries has
one of the largest and fastest-growing shown that this handicap can be over-
countries in the world. India is already come. The same will be true of the 
the world’s fourth largest economy in industry. There is no  operating in
 terms after the , China and the Indian time-zone; resulting in a wide
Japan. By  it will be the fourth largest empty space ( time zones) between the
in nominal terms. By  it will be the clusters of s in the East (Tokyo, Hong
third largest. India’s rapid growth has Kong, Singapore and Sydney) and the
resulted in a phenomenal increase in West (London, Paris, Amsterdam, Frank-
two-way cross-border financial flows furt and New York). Dubai, for instance,
that are related to trade and investment. is using its location, straddling these
Those flows are inducing high growth in time zones as a selling point for  .
 demand. Mumbai is to India what But it does not have many of the advan-
New York is to the  (see Chapter ). tages that Mumbai has (human capital,
. Human capital: India has high well-developed exchanges and trading
quality, low cost human capital (at platforms, a large hinterland market, 
all skill/knowledge levels) with English support capability) while having some
speaking ability for a world class  advantages that Mumbai does not have:
industry that can export successfully to i.e., excellent infrastructure, good urban
the world. But such human capital is governance, political and administra-
being absorbed at a rapid rate across tive drive, the makings of a global city
all service industries, and specialised with expatriates from all over the world,
knowledge in the frontiers of finance is and an ambition to succeed, with no
weak. Much needs to be done by way domestic political economy constraints
of education and training to expand holding it back.
the human resource base in terms of its . Democracy and Rule-of-Law: Properly
width and depth. These constraints are functioning financial markets require
discussed later in this chapter. a basis for governance that is stable,
. Location: In the -hour trading en- reliable, resilient and flexible; i.e.,
vironment of what is now an increas- one that reduces future political
ingly integrated global financial mar- risks and uncertainty. While these
ket (encompassing  countries and are important strengths, they are
embracing many significant emerging accompanied by equally important
markets as well) a well placed location difficulties in governance of Mumbai
that permits contact with participants and of India’s financial regime. These
in this market during daylight can be a issues are discussed later in this chapter.
significant strategic advantage. In work- . Mindshare: High  growth, the
ing hours, conversations from Mumbai  phenomenon, and the remarkable
172 R      M  I F C

success of Indians in global finance all prominent role in the top  global
over the world, serve to ensure that India financial firms. They are well-positioned
has significant ‘mindshare’ at senior to intermediate between the business
decision-making levels of most global strategies of these vital firms and the
financial firms. genuine strengths and weaknesses of
. Strong securities markets and techno- India as an .
logically advanced trading platforms:
India has established a beach-head for The international image of India today
providing global  by virtue of its involves a ‘high-skill with high motivation
dynamic, technologically capable securi- and high adaptability’ labour force for almost
ties trading platforms in the  and all service export industries. The attitude of
. These are the rd and th biggest ambition and hard work is epitomised in a
exchanges in the world measured by vol- statement of Shri Kamal Nath, the Indian
ume of transactions. Minister of Commerce: “In India, a  hour
Three of these six factors constitute working week is considered part-time”.
unambiguous strengths: hinterland Table . applies the same -to-
advantage, location and mindshare. scoring scheme, utilised earlier in this report,
The remaining three issues represent in making a cross-country comparison of
strengths, but a nuanced analysis reveals human skills in various kinds of finance
many important flaws. In the case of functions. Mumbai is compared against
securities markets and trading platforms, established and emerging  s. It shows
these issues have been dealt with at that Mumbai has some strengths when
length earlier in the report. It was argued compared with established  s. But at
that the framework of financial sector the same time, the table does not support
policy and regulation at present severely simplistic triumphalism of a kind often
limits India’s ability to utilise  and expressed about the superiority of the Indian
 fully in order to obtain an edge in labour advantage. While India has a certain
international  competition. In this presence in the finance labour force, there
chapter, we turn to a careful analysis are many areas of weakness.
of the two remaining points: human India is weak in not yet being a full
capital, and the issue of democracy and beneficiary (because it does not yet have its
rule-of-law. own ) of the globally mobile expatriate
workforce in finance. To be sure, Indian
1. Human capital needs for IFS expatriates populate almost all the English-
speaking  s. The three  s and
India has four strengths by way of human  would not be able to function as
capital endowments that give it an edge over well as they do without them. But these
other emerging s as far as the utility of its expatriates choose to live in these  s
human capital endowments for competitive and change their nationality rather than
 provision is concerned: remaining India-centric. By contrast, the
. The extensive use of English, which is the financial community of British, American,
lingua franca of international finance; Australian, Japanese, Canadian, Singaporean
and European nationals is genuinely globally
. Generations of experience with en- mobile, shifting continually across s at
trepreneurship, speculation, trading in home and abroad, while remaining anchored
securities and derivatives, risk taking, to their nationalities and homelands. They
and accounting. Indeed the ability to
accrue significant benefits for their home
provide  competitively seems geneti-
economies by doing so. Having an
cally coded into Indian finance profes-
 in Mumbai would enable India to
sionals;
shift from exporting its best financial
. Strong skills in information technology talents permanently, to retaining a hold
and quantitative thinking; on such talent in the future by providing
. Individuals of Indian origin play a greater global mobility, combined with an
 . A perspective on Mumbai’s strengths 173

Table 13.1: Cross country comparison of human capital support for the IFS Industry

London New York Tokyo Singapore Mumbai Hong Kong Seoul Sydney Dubai

J1. Quality, availability and cost of Finance Industry

professionals:
: Strategic/Exec 10 10 5 6 3 6 5 7 6
: Management (all functions) 7 8 5 6 4 7 6 7 6
: Trading & Dealing 9 9 6 8 4 7 6 7 5
: Financial Analysis & Research 7 9 5 6 8 7 6 7 6
: Compliance Specialists 8 7 6 9 4 5 6 8 6
: Back-Office Functions/Support 6 7 4 5 9 7 6 4 6
J2. Presence/Quality of Post-Graduate Teach- 6 10 4 3 2 3 3 5 0
ing/Research Institutions in Finance
J3. Local Pool/Network of globally experienced 10 8 4 7 2 5 5 7 5
finance professionals
J4. Local presence of Global HR Recruit- 10 10 6 8 2 5 5 7 5
ment/Consulting/Training Firms
J5. Ease of entry, exit and overall mobility of global 8 7 3 7 2 6 3 6 8
finance professionals at all levels

attachment to the homeland, that will prove is only % of the total university educated
mutually beneficial. workforce in India, compared to % in
A McKinsey Global Institute Survey Germany and % in China.
estimates India’s pool of young university Some evidence from the World Eco-
graduates (those with  years or less of nomic Forum and from  (Switzerland)
experience) at  million – the largest of comparing India against some other coun-
the  countries surveyed. This is . times tries on workforce skills is shown in Ta-
that of China and almost twice that of the ble .. There are divergent views between
. This pool increases by about . million the two sources on the educational system:
every year. But, only a fraction of this pool  ranks India at th out of  (i.e., in
has credible, usable skills.  managers the top decile) while  ranks the educa-
surveyed estimate that only –% of tional system at th out of  (i.e., in the
this pool would be suitable for an  bottom third). India scores high on edu-
environment. That is half the proportion in cation and staff quality in finance in both
Central Europe. The reason for this outcome instances.
is ascribed to: (a) extreme variability in the One aspect of labour quality concerns
quality of tertiary educational institutions support services – e.g., accounting, legal
– India has a handful of the best such services, business consulting and  support
– that are typically outsourced by financial
institutions in the world; but they co-exist
firms. These services complete the skill
alongside too many of the worst; (b) high
sets required by an  . The presence, for
rates of emigration of graduates from India’s
instance, of highly specialised printing firms
top quality institutions to  countries;
with tight internal security arrangements,
and (c) the inadequacy of communication
has become a complex specialised service in
skills in English except for the top tier of
the  market, given increasingly stringent
students from the better institutions who
regulatory disclosure and insider-trading
come from relatively high income groups prohibitions. Hitherto, a combination of
and class backgrounds. In terms of technical legal and commercial skills was a prized
and quantitative skills, only . million requirement in financial contracts; this
students hold engineering degrees. That combination is now meshed with specialised
 “Ensuring India’s offshoring future”, Diana Farrell, printing skills.
Noushir Kaka and Sacha Sturze, in Fulfilling India’s Broadly speaking, in a cross-country
Promise (McKinsey Quarterly Special Edition ). comparison, India fares well in these support
174 R      M  I F C

Table 13.2: Workforce skills base comparisons

Rankings USA UK Japan India Hong Kong S’pore Australia

Educational System (b) 17 36 40 11 15 3 4

Quality of the Educational System (a) 27 22 31 39 17 2 7
Education in Finance (b) 16 45 54 17 12 5 4
Quality of Management Schools (a) 1 3 37 6 25 16 7
Tertiary Enrolment Rate (a) 4 13 29 79 56 32 9
Availability of Finance Skills (b) 8 33 49 12 7 11 17
Reliance on Professional Management (a) 5 2 12 29 28 18 3
Labour Productivity – GDP (PPP) per person per 7 21 24 60 30 28 17
hour (b)

(a): Global Competitiveness Report 2004/05, World Economic Forum, (104 countries);
(b): World Competitiveness Yearbook 2005, Institute for Management Development, Switzerland, (60 countries)

services, except in the case of global law Modern post- finance knowledge,
firms, where India lags other  s. One at present, in India is weak; especially
way of developing capacities rapidly in the on the part of senior executives in most
support services and financial segments Indian financial firms as well as in the upper
mentioned above is to attract dominant echelons of financial regime governance.
players in these segments into the  . Lacking such knowledge and familiarity
London got a major boost when Deutsche with the kinds of operations and risks
Bank decided to move its global operations involved in derivatives markets for instance,
there. The presence of all the big investment the approach taken in India is to avoid
and commercial banks provides a critical these activities altogether or to constrain
mass to financial operations in Singapore. them to a point of irrelevance. Mainstream
Emerging  s like Dubai are pulling out  programs have a heterogeneous intake,
and do not delve into modern quantitative
all the stops to attract global financial talent
finance. Staff quality at universities
supported by middle management and lower
is inadequate when compared with the
level labour skills for  from India.
requirements of teaching modern finance.
Although there are still many regulatory
As an example, the Heath-Jarrow-Morton
restrictions on the entry of foreign banks
model is the workhorse of thinking about
into its domestic banking market, India fixed income derivatives. There are probably
has not been able to attract large capital not more than five individuals working at
markets players, even though there are universities in India who understand this
fewer restrictions on their entry in that model.
sub-segment. That is mainly because the Indian finance professionals have
development of major areas of financial a reputation for being quantitatively
activity in which such institutions excel (e.g., competent. This is rooted in the high quality
mergers and acquisitions, risk management, of high school education in India, where
currency trading, interest-rate arbitrage, everyone going through the th Standard
corporate-sovereign-sub-sovereign bond learns calculus. Many engineers who turn
issuance, hedge funds) are also artificially to finance are skilled in calculus and linear
proscribed in India. algebra. But they often do not know as
Table 13.3: Rankings: Quality and Capacity of Business Support Services to sustain an IFC

London New York Tokyo Singapore Mumbai Hong Kong Seoul Sydney Dubai

H1. Quality, reputation and presence of Global 9 9 8 9 6 8 7 9 6

Accounting Firms
H2. Quality, reputation and presence of Interna- 9 10 6 7 2 8 5 8 5
tional Law Firms
H3. Quality, reputation, presence of Global 10 10 8 9 4 7 6 8 6
Consulting Firms
H4. Quality and competitiveness of IT, BPO, KPO 6 6 4 5 9 5 5 5 6
support
 . A perspective on Mumbai’s strengths 175

Box 13.1: The Master of Science in Finance ( )

In India today, the and developing and testing technology and financial
commonest degree obtained by trading strategies. methodologies are applied to
individuals seeking a career in analyze complex problems. The
. The MSF tends to involve
finance is the MBA. coursework stresses the
substantial teaching in
Internationally, however, there application of contemporary
analytical financial
has been a strong shift in theories in a global context and
economics, going beyond
finance professionals, away develops valuable financial
the more descriptive finance
from the MBA towards a new modelling and analytical skills.
coursework as seen in the
degree called the Master of The programme contents
MBA where the
Science in Finance. There are impart students with a
mathematical background
three main differences between thorough understanding of the
of students is inadequate.
the MBA and the MSF: nature and operation of
international financial markets
. Usually about 20–25% of
The MSF program prepares and institutions and develop the
the coursework in an MBA
students for careers in financial analytical skills essential to
curriculum is focused on
analysis, investment structuring deals and designing
finance, while all the
management and corporate financial instruments, pricing
coursework in an MSF is in
finance where they will financial products and valuing
finance.
confront sophisticated financial companies, designing and
. The MSF imparts greater instruments, markets and managing investment portfolios
knowledge of mathematics trading strategies. The typical and managing risk for financial
and computer science, thus MBA student has a very limited institutions and multinational
preparing the student for knowledge of derivatives corporations.
the quantitative and arbitrage; the typical MSF
data-intensive modern India’s best institutions
student knows quite a bit about
finance workplace, where urgently need to introduce and
it.
mathematical models are offer courses aimed at an MSF
applied into measuring risk, The MSF is a quantitative degree.
pricing financial instruments, program, where current

much about probability theory. Finance School ( ) and the London School of
professionals in London do more computer Economics () supported by mathematics
programming, while their counterparts in and quantum physics graduates from nearby
Mumbai are likely to use a spreadsheet. Oxford and Cambridge which are an hour’s
If Mumbai is to emerge as an  , drive away. But they do not quite compare
substantial skills development will be as yet with the sheer cerebral firepower in
required to overcome a potential human quantitative finance that is concentrated at
capital supply constraint in financial services: the top  institutions.
especially in the areas of stochastic calculus Singapore has the National University
and analytical financial economics. Middle of Singapore ( ). In a recent and
level executives and senior staff employees remarkable achievement, the ‘Singapore
of financial firms, who knew mathematics Management University’ has been created.
when they were in their twenties, need to This is a private university, created in 
go back to learning probability, statistics, using public funding. It operates in the
analytical financial economics and computer heart of the city, in order to maximise
programming. The flow of young people the two-way flows of knowledge between
coming into the finance field needs to have the industry and the university. It pays
a much stronger grounding in probability, globally competitive wages in order to
statistics, analytical financial economics and attract world class researchers. Singapore
computer programming. Management University is very young when
New York has the Stern School of compared with the IIMs, and it has only
Business at New York University (), and one campus when compared with the
the Economics Department at Columbia numerous IIMs. Yet, a google search for
University. It is also supported by schools “singapore management university” already
in close proximity such as  , Wharton yields , hits while a google search
and Chicago that excel in quantitative for “indian institute of management” yields
finance. London has the London Business ,. This suggests that Singapore
176 R      M  I F C

Table 13.4: Rankings: governance issues affecting operations/Credibility of an IFC

London New York Tokyo Singapore Hong Kong Seoul Sydney Dubai

G1. Quality and Credibility of National Governance 7 6 7 10 3 6 7 7

G2. Quality and Credibility of State/Provincial Governance 8 9 8 10 5 7 8 7
G3. Quality and Credibility of Local/Municipal Governance 8 8 9 10 6 7 8 9
G4. Influence of Politics in diminishing Governance Quality:
National/Federal 6 6 8 10 5 5 8 8
State/Provincial 6 8 8 10 6 5 7 8
Local/Municipal 8 8 8 10 7 7 8 10
G5. Quality, Capacity, Efficiency, Effectiveness of Administra-
tion:
National 6 7 8 10 5 6 8 8
State 6 8 8 10 6 6 8 8
Municipal 8 9 9 10 7 7 8 8
G6. Role of Checks & Balances (NGO oversight, media 8 9 5 2 4 4 6 0
freedom, civic action etc.)

Management University has been able of openness. Respect for property rights
to very rapidly build up a presence and is strong (more in principle than practice).
achieve impact. In addition, the Singapore India has, in the past expropriated property
government is working with over a dozen and undertaken sweeping nationalisations
global universities, attracting them to in finance and industry. That history should
establish campuses in Singapore. In theoretically count against it as far as having
contrast, India has presented a forbidding an  is concerned although London was in
environment where foreign universities are a similar situation when the  also resorted
unable to establish operations in India. to nationalisations that it later reversed.
Mumbai has no institutions (except And, in the era of nationalisation in the
perhaps ) where a few of the highest- , London’s fortunes as an  definitely
calibre intellectuals inhabit an ivory tower, suffered.
conduct on-going research programmes As Fareed Zakaria has emphasised, the
with Indian financial firms at the frontiers heart of a democracy (and its protection
of finance, and teach the next generation and safe-keeping) lies in the quality of its
of finance professionals. Mumbai lacks judiciary and not only in the legislature or
the wealth of conferences, seminars, short- in elections. The infrastructure for law and
term continuing education courses, and order, and contract enforcement, are central
intellectual life that sustains the top end of to a vibrant democracy. They directly affect
the financial services industry. The top ten the credibility/viability of Mumbai as an
books on the desks of quantitative financial emerging .
professionals in global financial firms are India is a thriving democracy – the
available off the shelf at bookshops in New world’s largest, most complex and most
York, London and Singapore. But they are vibrant – supported by a legal system that
almost impossible to find in Mumbai and is now being strained at the seams with
have to be acquired abroad. India lacks not the rapid growth and progress that has
just the sophisticated mathematical skills it occurred since the s. The length of
needs in its financial services workforce it time taken for cases to progress through the
lacks teachers in these disciplines and simply legal system and the consequent enormous
does not produce enough of an annual flow backlog of cases that has built up in
of them. the lower civil courts, impinges on the
question of whether India has a legal system
2. Democracy, Rule-of-Law and environment that is sufficiently supportive of
the swift resolution of conflicts and disputes
the Legal System
arising from the settlement/enforcement of
India has a long tradition of free and fair complex international financial contracts.
elections, freedom of speech, and a spirit That in turn influences the prospects of
 . A perspective on Mumbai’s strengths 177

Table 13.5: Protecting Investors & Enforcing Contracts

Strength of
Extent of Extent of Ease of investor
disclosure director shareholder protection
index liability index suits index index Procedures Time
(0–10) (0–10) (0–10) (0–10) (number) (days)

Singapore 10 9 9 9.3 23 69
United States 7 9 9 8.3 17 250
Hong Kong, China 10 8 8 8.7 16 211
United Kingdom 10 7 7 8 14 288
Australia 8 2 8 6 11 157
Japan 6 7 7 6.7 16 60
Germany 5 5 6 5.3 26 175
Korea 7 2 5 4.7 29 75
Malaysia 10 9 7 8.7 31 300
France 10 1 5 5.3 21 75
Taiwan, China 8 4 4 5.3 28 210
UAE 4 8 2 4.7 53 614
China 10 1 2 4.3 25 241

Sources: World Bank Group Doing Business 2007 and 2006

providing  to the global market from consensus that there was considerable scope
Mumbai on an efficient, competitive basis for improving governance at all levels of
and of Mumbai becoming a competitive  the system –particularly at sub-sovereign
in the foreseeable future. levels. It felt that governance standards in
Using the same techniques as in earlier India needed to approach world standards
chapters, the comparative Table . ranks as rapidly as possible if Mumbai prospects
various established and emerging s on a for emerging as an  that was credible
series of layered governance variables. As in in global financial markets were not to be
the case of legal comparators shown in an compromised.
earlier chapter, the  felt that it was not The most critical role of the State
in a position to derive subjective rankings (and the government in power at the time
on these variables for Mumbai. Consensus exercising the functions of the State), as far as
could not be achieved on quantitative scores its citizens and residents are concerned, is its
for Mumbai, given the degree of subjective ability (with the infrastructure and human
judgement involved in coming up with capacity it has in place) to uphold the law,
such scores. But the  did have broad to ensure the maintenance of law and order

Table 13.6: Paying Taxes

Payments Time Total tax payable

(number) (hours per year) (% of gross profit)

Singapore 16 30 19.5
United States 9 325 21.5
Hong Kong, China 1 80 14.3
United Kingdom 22 – 52.9
Australia 12 107 37
Japan 26 315 34.6
Germany 32 105 50.3
Korea 26 290 29.6
Malaysia 28 – 11.6
France 29 72 42.8
Taiwan, China 15 296 23.6
United Arab Emirates 15 12 8.9
China 34 584 46.9
India 59 264 43.2

Source: World Bank Group Doing Business 2007 and 2006

178 R      M  I F C

through enforcement capability (i.e., the areas. On the specific question that exercises
effectiveness of its police forces and other the mind of those operating in an – i.e.,
mechanisms), to prevent crime and provide the problem of enforcing a contract, this
security for persons and their property, to takes on average  days in India, far longer
enforce property and creditor rights fairly than in any other country shown in the table
and impartially, and to resolve contractual with the exception of the .
disputes through the due processes of law. Finally, an important aspect concerning
In all these respects it is no secret that the functioning of the State in a country
much progress needs to be made at sovereign intent on establishing an  – that auto-
and sub-sovereign levels of governance to matically requires extensive participation
arrive at global standards. The challenge by international firms and individuals – at a
of a third world country attempting to procedural level is the overhead and com-
achieve first world standards in these areas is plexity of its tax system. Table . below
daunting; but India has made a promising shows that in India, there are  distinct tax
start with domestic expectations rising as payments made by a firm, a task which takes
rapidly as incomes. The  believes up  man-hours per year. This compares
that progress in governance at all levels – in poorly with alternative  s like Dubai or
the public and private sectors – needs to be Singapore.
commensurate with rate of progress in other