US Treasury Secretary Henry M Paulson, focusing attention on the Indian economy than his own concerns over sub-prime loans and a possible looming recession on his home turf, doled out advice to India that it must speed up liberalization, while the Sensex cruised to a new high in a signal of India turning the hottest growth story.
Touching Mumbai on a day when the country’s leading benchmark stock index touched new highs, he made a strong case for turning the city into an international financial centre, while sounding concerns over China keeping its currency artificially weak.
“Issues related to developing Mumbai as an IFC are an important element of that (policy) agenda,” Paulson said in his address to the Indo-US CEO Forum.
Commenting on the regulatory steps taken by India to adjust the pace of capital outflows and inflows Paulson said, “administrative restrictions of capital flows are blunt investments and can have unintended consequences.” Instead, India should continue to liberalize such restrictions and take steps to broaden and deepen the domestic financial sector, which will help mitigate the risks posed by greater capital flows, he said.
Speaking at the conference, Finance Minister Palaniappan Chidambaram said India introduced the curbs because of concern about investment from unregistered entities, especially unregulated ones.
"So long as funds come in after registrations, they are welcome to do so," Chidambaram said.
Paulson said the report of the high-powered committee on Mumbai as an IFC is “bold, thorough and ambitious and it demonstrates the right path. This will enable India to invest in the world and the world to invest in India,” he said.
“The US private sector stands ready to share their experiences in dealing with the development of domestic bond markets and other elements that create the backbone of a financial centre.”
Paulson also had few other suggestions such as reducing the statutory requirements for financial institutions, reducing the requirements for banks to provide priority sector lending and removing various restrictions and caps on foreign investment.
Paulson also said China needed to move more quickly towards a market-determined currency. He said India was mostly on the right path to modernise its financial sector, with a flexible currency, but China, with its tightly controlled yuan exchange rate, was increasingly the focus of protectionist sentiment around the world.
"Very often around the world, if someone doesn't like globalization, the face they put on it is the face of China," he said.