The fate of financial centres

The Inside Story of London’s Big Bang and a Financial Revolution that Changed the World
Iain Martin
352 pages; Rs 599

If India moves forward several gigabytes on adopting digital money after demonetisation, would this also mean another effort to position Mumbai into, at least, a regional financial centre for companies looking to raise money for digital commerce?

Reading Iain Martin’s Crash, Bang, Wallop, the story of London’s emergence as an international financial centre, an Indian can certainly wonder what didn’t work in favour of Mumbai. 

Exactly a decade after the now forgotten report of Percy Mistry committee on Making Mumbai an International Financial Centre (February, 2007), it is possible to look back on the opportunities missed for the city. The reminiscences, if one can call them that, become more regretful now that Mumbai’s Asian neighbours have grasped one more opportunity that eluded the city: Acting as centres of arbitration. India has till recently delayed amending the necessary legislation that is so tied up with movement of global capital. 

In his book, Mr Martin describes London thus: “It was in the perfect time zone for trading and it also had the English language, long-held expertise on foreign exchange and financing trade and a framework of institutions in pace stretching back several centuries”. He could as well have been describing Mumbai, too. The definitive study of the Indian stock markets, From Banyan Tree to e-trading — SEBI: An Agent of Change shows the striking resemblances between the two cities. Mumbai was certainly a lesser brother of London but in the heady days of colonial rule, the city was a key player in global commerce. As Kolkata lost its pre-eminence, the venue for financial action in Asia shifted to Mumbai. The city was poised beautifully as the vanguard of the Eastern markets and geographically well positioned just beyond the Suez Canal. 

Merchants flocked to it and so did capital. The only element that held back the city was the stifling ring of controls on capital, which made Hong Kong, Singapore and then Dubai run away with the advantages, one after another, even as Indian governments looked around for other elusive growth opportunities. 

Mr Martin’s breezy tale goes on to describe why London did not suffer an equally cruel fate. The broad trend is that for every unsympathetic administration, there was revival in kinder times. The Eurobond market that opened up in the Sixties, for instance, made up for the harshness of the post-war Labour government’s punitive strike at the city. 

The biggest of them all was, of course, the big bang reforms of the 1980s, which referred to the series of stock market deregulations introduced by the Margaret Thatcher administration and from which Mr Martin’s book gets its title. The choice of the catchy name has much to do with Mr Martin’s profession as a journalist. His earlier book, Financial Times shortlist for the Business Book of the Year in 2013. 

Most of Mr Martin’s book predates Brexit. It is too recent an event to judge its impact on the city’s future. Data on how London as a financial centre will take on the fresh challenge is still out there swirling in the political winds. His own view if that given the history of resilience and flexibility of the city over the past few centuries, things will turn out all right. He writes, “Even before the UK voted… the City was going to face serious challenges coping with the latest high-speed revolution… Now, on top of that, the City has to cope with the destruction of the very settlement that has brought such prosperity to the Square Mile in the first decades of the twenty first century. Can the City do what it has done so often in the past…?” 

But the past is rarely a guide for the future, especially one where the course the nation has set is clearly an insular one. As Mr Martin surmises, none of London’s advantages were natural. It was a combination of efforts made by the city’s merchants, allied with a liberal but stable political climate which encouraged immigration and innovation that made the city what it is today. It is also the same set of circumstances that set up its independent press including the BBC.

As the Indian experience suggests, those same circumstances can go waste. Since 1991, when New Delhi began economic liberalisation, successive governments have resorted to fitful reforms in the financial sector, loosening up to only bring in more restrictions, often within the same year. What is lost is the chance to add a powerful services sector to play foil to the success of the IT sector.

With world growth slowing discernibly and the centre of trade clearly moving to Southeast Asia, there is still a chance that both London as a global financial centre and Mumbai, a city that never made it, would find their futures changed.

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