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Macro and Micro Drivers of Business Potential of IFSCs in India (Dr. Urjit R. Patel Governor January 11 2017 at Gandhinagar Gujarat)

News and Press Release - Dated:- 11-1-2017 - A. Introduction 1. We are gathered here today to commemorate the establishment and success of GIFT, India s first International Financial Services Centre (IFSC) that brings together world class infrastructure, connectivity, people and technology on a single platform for businesses across the world. An all-inclusive and modern economic zone, it offers global firms competitive access to India s large and burgeoning demand for financial services. 2. Inte .....

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y the ease of doing business principle, tempered by prudent risk management, and geared to deliver efficient financial services. The various areas of attention from this standpoint include registration and approval process for new entrants, regulation, supervision and resolution of financial entities, and dispute settlement. 4. IFSC at GIFT City is probably the first such centre to be launched after the 2008 global financial crisis. In some ways, the light-touch regulatory philosophy epitomised .....

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attributes there are two other dimensions, viz., the broader economic environment in tandem with associated policies, and the micro ecosystem specific to the IFSC sector. B. Macro 7. As we celebrate GIFT today, it is important to recognise that its further growth will, inter alia, be predicated on the environment of domestic macro stability that we have achieved along several key areas over the last few years. We need to be ever vigilant to preserve and build upon what we have attained. Our cred .....

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month. The other transition, of course, is the rebalancing of China s growth drivers from investment and exports to domestic consumption of goods & services. One of these transitions is welcome, the other not so. 8. For us, in India, good policy housekeeping should be the cornerstone. It is easy and quick to fritter away gains regarding macroeconomic stability. But hard and slow to regain them. What have we learnt about the important policy attributes in this context? 9. Firstly, a monetary .....

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w and stable inflation is an essential prerequisite for having a meaningful interest rate structure or regime whereby decisions by savers and investors help to achieve maximal allocative efficiency in an economy whose investment rate has to increase for better growth outcomes. Concomitantly, we have to continue to press ahead for a more fluid, smooth transmission of monetary policy, as also enhance the formulaic linkage between changes in policy rates and other rates, including administered ones .....

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usly, within a regulatory framework, which RBI has suggested. Guarantees increase government s contingent liabilities, and add to risk premia for its own borrowing. Guarantees per se at the end of the day have limited utility in solving important sector issues. For example, for small scale enterprises, perhaps non-pecuniary and transaction costs related to clearances, inspections and the taxation bureaucracy are more important. 12. Second, since 2013, the central government has successfully emba .....

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for ourselves, and thereby mitigate financial volatility. In the context of an already adverse external environment that I mentioned earlier, this assumes more importance. 13. Borrowing even more and pre-empting resources from future generations by governments cannot be a short cut to long-lasting higher growth. Instead, structural reforms and reorienting government expenditure towards public infrastructure are key for durable gains on the Indian growth front. Investment in public transport, sp .....

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nancial centre should also include measures for adequate provision of capital to the domestic banking system. We have to ensure that our banks continue to conform to international capital standards as a member of the G-20 and the BCBS. Let me turn to IFSC-related sector issues. C. Micro ecosystem 15. The other dimension that is critical to GIFT s comparative competitiveness is, as I mentioned earlier, the micro ecosystem within the IFSC. Here, there is the need for a modern complementary legal i .....

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