Paulson backs India financial reforms

FE Team | Published: October 26, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Krishna Guha and Edward Luce
FT Syndication Service
WASHINGTON: Hank Paulson, the US Treasury Secretary, on Wednesday threw his weight behind plans to turn Mumbai into an international financial centre in a speech ahead of his first official visit to India later this week.
Mr Paulson told the Council on Foreign Relations "I hope to help the Indian government advance their economic reform agenda" which he said would "benefit India's citizens and the world."
In an interview with the Financial Times Mr Paulson added that he saw his visit as part of a broader effort to build stronger economic ties between India and the US - in a parallel to his regular high-level US consultations with China.
"India is a very important country," he said. "We are enjoying a strong relationship that cuts across a number of areas and as Treasury Secretary it is important to engage with India."
Mr Paulson, whose visit coincides with New Delhi's decision to shelve the "historic" US-India civil nuclear deal that was concluded in July, said the US could assist India in two clear ways - promoting Mumbai as a financial centre and overall capital markets reform and helping India finance its "massive" infrastructure needs, which are estimated at $500bn over the next five years.
Although he was not traveling to India with specific proposals, he fully expected to return with a plan of action, he said. "I expect to come out of this trip with some very specific things to follow up on," he said in the interview.
The US Treasury Secretary gave his full backing to proposals by an Indian committee aimed at turning Mumbai into an international financial center.
These include reducing India's public debt burden, reforming its monetary policy regime, creating integrated bond, currency and derivatives markets, greater capital account convertibility and a shift towards principles-based regulation of capital markets.

Mr Paulson said "I urge my Indian colleagues to move forward quickly on the recommendations." Mr Paulson also promised US government help in the effort to attract more private investment in Indian infrastructure, while politely urging the Indian authorities to "do more" to encourage this investment.
"Capital limitations, combined with ongoing uncertainty about contract enforcement and regulatory consistency will make infrastructure investment more difficult to obtain," he said.
The US Treasury Secretary touched on a key economic debate within India as to how to best to manage surging capital inflows, which could boost inflation or even destabilise the financial system.
"What India has done with the appreciation of the rupee is commendable," he said. "Rupee appreciation hasn't slowed growth and inflation is relatively constrained. But capitol controls are a blunt instrument."
He also highlighted what he called "dramatic increases in mutual trade and foreign direct investment" between the US and India, with Indian exports to the US reaching $21bn last year and US exports to India $10bn.