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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