Indian Financial Markets

CHAPTER 12

What Can Global Financial

Firms Do with India?

As Figure 12.1 shows, there has been a dramatic upsurge of net capital flows

into the country. Starting from values such as $5 billion a quarter roughly five

years ago, the latest data shows that $33.9 billion came into India in the July

through September 2007 quarter. However, the involvement of global financial

firms in India is much bigger than suggested by this data.

Data on net capital flows hide the important gross capital flows that are

taking place. As an example, while 2.34% of GDP came into the country in

2006–2007 by way of inbound FDI, 1% of GDP flowed out of the country

by way of outbound FDI by Indian firms (Figure 12.2). This shows up as a

net capital inflow into India on account of an FDI of 1.34% of GDP, but from

the viewpoint of financial firms, the base of transactions that are customers

for international financial services associated with cross-border FDI is 3.34%

of GDP.

The demand for international financial services is, of course, driven by the

integration of a country into the global economy, across both the current account

and the capital account. Estimates offered in Mistry (2007) suggest that in

2005, roughly $13 billion was paid for the purchase of international financial

services linked to India. This number is expected to quadruple by 2015. This

suggests that India-related business is an important area of business for all global

financial firms.

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