US-India Summit on Economy and Finance

US-India Summit on Economy and Finance

Almost twenty-four years after coming to the country, I was fortunate to be invited as an US delegate on Financial Regulations in the US-India Summit, co-sponsored by Brookings Institute and Confederation of Indian Industry. It was headlined by Timothy Geithner, Secretary, U.S. Department of Treasury under President Obama, and Pranab Mukherjee, Finance Minister, Government of India. I have been working on a global think-tank on technology and management strategy related to financial industry and financial regulation and investment control were at the heart of this bilateral summit.

What struck me was the reverence with which India and its beliefs and accomplishments were treated by the leader of the Free World, United States. India’s growth rate, its rich pool of talented researchers, technologists and experts, it’s belief in secularism, peace and democracy, its foundation built on a rich cultural and philosophical heritage were all mentioned reverentially by speaker by speaker. It’s a phenomenal transition for me – coming on a student scholarship to work on a NASA/NSF-funded project to a land of dreams and opportunity, where NASA represented an extra-terrestrial opportunity. Here, twenty-four years later, the US Under-Secretary, Lael Brainard, was commending India on a phenomenal growth rate, almost four-times United States’ while asking for an opportunity to participate in that growth. What a change in attitude between my motherland and my adopted homeland – from the admirer to the admired!

Here are some of the key bullet-points of India’s phenomenal growth:

·         India’s growth rate of 4-5% in early nineties has sky-rocketed to 9% for three years before the financial crisis in 2007-2008.

o   Even during the height of financial crisis, India grew at 6.8%

·         India plans to grow 8-10% over the next 20-30 years

o   That will make India the third largest global economy

·         India’s per capital income is projected to grow from $1200 in 2011 to $10,000 in 2039

·         India has very healthy savings and investment rates – 33% savings and 36% investment rates. That is much higher than the developed countries. That will fuel India’s growth rates farther, while putting India’s economy on a strong foundation.

·         India’s population will see a major shift in population from the village to the urban centers – cities and towns. About 590 million Indians will live there by 2020 – twice the population of United States.

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With this tremendous growth rate and shift in population, India needs tremendous infrastructure investment – highways, railways, office and residential infrastructure. We have all seen the absolutely phenomenal building in the last decade – 2001-2011. To keep pace with India’s growth, India needs 20 times that investment in the next decade – a mind-boggling 1 trillion dollars.

·         India needs great education, health-care and governance to keep this growth rate going and feasible. India’s pool of talented and skilled workers needs to grow – the government-run education system, which helped nurture many of us, cannot do that on its own. There is great potential to invest in that sector and fuel that growth.

·         India also has a slight deficit and India’s trade balance is in a healthy state, not a surplus or deficit to an extreme.

·         India’s inflation is at a disconcerting 10% and is affected by high commodity and food prices. Many of this is beyond India’s control – but proper attention has to be given so that inflation does not become an albatross around India’s neck.

·         India and Canada lead the framework sub-group of the G20 leadership to work on the regulations needed for the financial industry.

Obviously, faced with challenges of the global financial slowdown, United States wants to participate in India’s growth. Investments US companies can make in that sector will lead to many US jobs and also, lead to a net flow to US economy.

Can US effectively regulate its financial industry without stifling it?

US want to channel investment in Indian markets, enabling direct participation and buying/selling of Indian equities. One of the reasons US Treasury Secretary had a host of regulators and financial experts on their side was to assure India that proper regulations are being put in place to keep the financial industry in check and ensure that the global financial meltdown is not repeated in India by US and western participation. Being one of the people advising on use of technology and management controls to properly regulate the financial industry, I do understand that this assurance is a key factor in India’s decision in allowing foreign participation. That is why US secretary invited few in the US finance industry think-tank to be part of his team to address India’s concern.

With the introduction of Dodd-Frank regulations and other regulatory controls, US is working overtime to work out the right regulations to pre-empt a global meltdown. With proper technology controls and management oversight, it is possible to get an early warning and make sure that there is proper governance so that a complete unexpected meltdown is averted. US, with the help of management consultants, academicians and industry leaders, is confident that these measure will work and help ensure a robust but growing financial industry. As the person familiar with use of technology and management strategy for financial oversight and the progress of these regulations, I have faith in US ability to make giant progress in this area.

How can US help India?

·         Participate in India’s economy and markets

·         Help build out India’s infrastructure – roads, highways, railways, commercial and residential real-estate, urban planning.

·         Develop India’s private education system – help formulate right policies, leverage education experts and help build proper private institutions.

·         Build proper financial regulations and controls so that this run-away growth is tempered with right control of inflation.

As two of the largest democracies of the world, believing in freedom of religion, fighting the global war of terrorism, US and India share many of the ideals, which built the foundations of the two countries. Both have incredibly talented individuals, vast pool of resources, which can be leveraged to help each other. Born and brought up in India, in the pre-1991 days, it has been very gratifying to watch the tremendous prestige and reverence shown to India – India has earned it. In the words of Tagore, India is acquiring the top seat in global assembly!

Partha Sarathi Chatterjee, B.Tech(Hons) (IIT), M.S. (Computer Science), MBA.

Director, Energy & Finance Practice, SunGard Global Services.