1. 1 Kellogg India Business Conference 1 Mumbai as an Int’l Financial Center: Aspects of the Indian Economy India Visit 2013 George Mason University January 14, 2013

2. 2 Structure of the presentation 1 2 3 4 Structural transformation of India’s economy 5 How far along are we as an IFC? Financing sustainable growth Why do we need a domestic IFC for funds Where do we go from here?

3. 3 1 2 3 4 Structural change in India’s economy 5 How far along are we as an IFC? Financing sustainable growth Why do we need a domestic IFC for funds Where do we go from here?

4. 4 Kellogg India Business Conference 4 India has consistently been one of the fastest growing economies, with a high savings rate fuelling investment... Growth rates of selected countries %, CAGR Source: World Bank, RBI Savings Rates in India and other countries Gross Domestic Savings (% of GDP)

5. 5 Kellogg India Business Conference 5 India has become more integrated with the global economy, with share of both trade and financial flows in GDP having doubled BOP flows account for over 100% of GDP % of GDP Total BOP flows Trade flows Financial flows Source: RBI

6. 6 Kellogg India Business Conference 6 … with increasing reliance on foreign savings

7. 7 Kellogg India Business Conference 7 Indian corporates have expanded their presence in overseas markets, for increasing scale and access to technology... Market Access / Scale / Branding Raw materials / Energy Knowledge / Technology

8. 8 Kellogg India Business Conference 8 The Rupee has been increasingly freed over the past 3 decades, with increasing volatility: sign of more market oriented economy

9. 9 Kellogg India Business Conference 9 Has India then become more “coupled”? Yes and No: Initial shock of financial crisis was via global liquidity, but transient India GDP growth slowdown... % yoy... Was mainly due to a foreign funds liquidity shock Source: Govt of India, RBI

10. Transformation of India’s economic structure will create opportunities across multiple sectors … Services Emerging as pre-eminent growth driver

11. 11 Kellogg India Business Conference 11 Urbanisation will not only be a growth driver, but also deepen connections, e.g., through remittances and food supply chains P Urban contribution increasingly important for growth Source: Mckinsey Global Institute

12. 12 Kellogg India Business Conference 12 … resulting, within India, an integration between urban and rural, evident in the convergence of consumption patterns Rural and urban FMCG consumption Rs bns Urban Rural Source: Che Kothari Studio Source: McKinsey Global Institute

13. Over the long term, the India Opportunity Remains Intact … good chance that India will shine in a slowing world 13 Favourable demographics High Investment Rate Structurally Higher Growth High Savings rate

14. 14 Yet … we have to learn from success of others! China had more poor people than India in 1990 Population living below $1.25 per day (millions) Source: World Bank

15. 15 1 2 3 4 Structural transformation of India’s economy 5 How far along are we as an IFC? Financing sustainable growth Why do we need a domestic IFC for funds Where do we go from here?

16. 16 The financial sector will be a critical enabler for sustainable growth …

17. 17 Kellogg India Business Conference 17 Infrastructure funding … XI Plan infra financing projections (USD billions) Composition of Infra. funding 1,214 514 1

18. 18 … where banks will retain their re-dominant role, but other institutions will be needed to provide more funds 18 Actual source of funds in the first 3 years of XI Plan (2007-2010) Share of institutions in private sector debt Source: Planning Commission

19. 19 SMEs: Entrepreneurs with cash balances and falling leverage will create growth opportunities 2

20. 20 Kellogg India Business Conference 20 Financial inclusion: leveraging unconventional channels and new technology 3

21. 21 1 2 3 4 Structural transformation of India’s economy 5 How far along are we as an IFC? Financing sustainable growth Why do we need a domestic IFC? Where do we go from here?

22. 22 Kellogg India Business Conference 22 What does an IFC do? Matching investors with financing risks  Facilitate funding –Matching risk profile of credit with investors  Manage risks –Global workforce expanding at rate slower than job creation  Manage the development of an ecosystem –Legal, accounting, consulting  Technology –New products and product delivery mechanisms

23. 23 Translating funding potential into flows for infrastructure: Structuring financial products to match risk profiles of investors 23 1.Traditional Insurance Plans 2.Provident Funds 3.Pension Funds 4.Retail Individuals 5.Trusts Capital Protection Steady returns Investor Segments Key Requirements Credit Protection / Credit Enhancement Product Features required Long Term Retirement Funds 1

24. 24 Translating funding potential into flows: Structuring financial products to match risk profiles of investors 24 1.Regular Income MFs 2.Unit Linked Insurance Plans 3.Private Banking Units 4.Foreign Endowments 5.Foreign Insurers Well-structured asset pools Diversified and performing cash flows without project risk Secondary market liquidity Investor Segments Key Requirements Securitised cash flow pools Rated and listed instruments Product Features required Fixed Income Investors 2

25. 25 Translating funding potential into flows: Structuring financial products to match risk profiles of investors 25 1.Foreign Project Finance Institutions 2.Sophisticated investors (e.g., hedge funds) 3.ECAs / Development Institutions Viable Projects Consistency of Policy Investor Segments Key Requirements Without recourse project finance Appropriate risk – reward Product Features required High Yield Investors 3

26. 26 1 2 3 4 Structural transformation of India’s economy 5 How far along are we as an IFC? Financing sustainable growth Why do we need a domestic IFC for funds Where do we go from here?

27. 27 Kellogg India Business Conference 27 Thank You