New York
October 18, 2007

We live in interesting times and I come from one of the most interesting places in the world today – India. There is, around the world, more than usual interest in the India growth story. I am happy that ICICI Securities Ltd. has organized this Investor Conference and given me an opportunity to share the story with you. ICICI Securities is one of our leading investment banks; it has a significant position in all segments of its operations – corporate finance, fixed income and equities. I welcome the initiative taken by ICICI Securities to organize this conference and wish the conference success. 

2. The India growth story is now too well known, and certainly well known to an informed group like the one I address today. Nevertheless, some facts bear repetition. In the four years beginning 2003-04 and ending 2006-07, India’s GDP has increased at an average rate of 8.6 per cent a year. At the end of 2005-06, savings as a proportion of GDP was estimated at 32.4 per cent and investment as a proportion of GDP was estimated at 33.8 per cent. Both metrics are estimated to have increased by about 1.3 per cent in 2006-07. These robust indicators place India as the second fastest growing economy in the world. I may add – with your leave – that India is the fastest growing free market democracy in the world. 

3. As I speak to you, the markets in India have closed with the NIFTY at 5351 and the Sensex at 17998. Year on year, these numbers reflect a rise of over 40 per cent. The movement of these two benchmark indices has been significantly more than that of the Dow Jones or the NASDAQ and are comparable to the movements in most emerging markets. Market capitalization (December 2006) was at US$ 820 billion, making the Indian securities market the 6th largest in the Asia Pacific region after Japan, China, Hong Kong, Australia and Korea. In fact, the market capitalization of listed securities exceeds the aggregate deposits with the banking system in India. The current market capitalization is US $ 1450 billion on the BSE. 

4. The Indian financial markets have played a vital role in consolidating and accelerating the growth momentum. There is still a belief in some sections of society – especially in developing countries like India – that capital markets are tools of the rich often used to enhance their wealth at the cost of the poor. If capital markets are not organized on sound principles and are not well regulated, there is indeed the danger that gullible investors could fall prey to manipulation and scams. Every country in the world has had its share of scandals – we had ours in 1992 and 2001 -- and our experience only underscores the need for a well regulated capital market. A well regulated capital market brings together those who wish to invest funds and those who need to raise capital or borrow funds. The investor and the borrower have a common objective of wealth creation that in turn has positive externalities for the entire economy.

5. Since the UPA Government under Prime Minister Manmohan Singh took office in May 2004, we have taken a number of steps to strengthen the securities market. Among these are:
· Corporatization and de-mutualization of all stock exchanges;
· Introducing simpler and quicker procedures for registration and operation by Foreign Institutional Investors (FIIs);
· Allowing trading of securitized debt;
· Permitting more entities such as banks, primary dealers, insurance companies, mutual funds, provident funds and pension funds to trade in Government securities;
· Creating a unified exchange traded market for corporate bonds;
· Allowing Indian mutual funds to invest in overseas exchange traded funds; and
· Allowing short-selling, settled by delivery, and securities lending and borrowing to facilitate delivery, by institutions.

6. The securities markets in India have made enormous progress in developing sophisticated instruments and modern market mechanisms. The key strengths of the Indian capital market include a fully automated trading system on all stock exchanges, a wide range of products, an integrated platform for trading in both spot and derivatives, and a nationwide network of trading through over 5,000 branch offices of the National Stock Exchange and the Bombay Stock Exchange and over 15,000 trading screens. There are 10,000 brokerage firms in India and nearly 99% trades for delivery are settled in dematerialized form. 

7. The real strength of the Indian securities market lies in the quality of regulation. In the course of the last 15 years, the Securities and Exchange Board of India (SEBI) has acquired an enviable reputation as an independent and effective regulator. Regulations have been put in place in respect of intermediaries, trading mechanism, settlement cycles, risk management, derivative trading and takeover of companies. There is a well designed disclosure based regulatory system. Information technology is extensively used in the securities market. The most advanced and scientific risk management systems are employed by the two leading stock exchanges. The growing number of market participants, the growth in volume of securities transactions, the reduction in transaction costs, the significant improvements in efficiency, transparency and safety, and the level of compliance with international standards have earned for the Indian securities market a new respect in the world. We believe that the Indian securities market is among the best regulated in the world today.

8. While the India growth story is broad based, not every business in India has been a gainer in the country’s growth story. Nevertheless, I can say with confidence that the gainers in India’s growth story have outnumbered the losers. Who has lost and who has gained? Family owned businesses that opposed the policies of liberalization have lost; businesses that embraced liberalization and globalization have gained. Industries that were sheltered behind licenses and tariff walls have lost; industries that were prepared for competition and raised their efficiencies have gained. Entrepreneurs who relied on their own capital and skills and were content to remain small have lost; entrepreneurs who brought in professional managers, boldly accessed the capital market and introduced new products and services have gained. Above all, sectors of the economy that were thrown open to the private sector and to real competition – such as banking, insurance, information technology, telecommunication and aviation – have gained tremendously; sectors that are still closed or only partially open – such as mining and distribution of power – have lagged behind and huge wealth is locked in a few companies. 

9. We recognize that India is one among a hundred destinations where a foreign company can make an investment. The investor will naturally weigh the opportunities and the risks. It is now widely accepted that India is a vibrant democracy, that its economy is increasingly open, and that it is a country governed by the rule of law. I can assure you that none of this will change – not now, not in the near term, and in fact, never. If there are any changes, they will be changes for the better and towards a more open and competitive economy. 

10. We also recognize that we have a responsibility to sustain the interest of investors. Both policy and practice have to meet the expectations of investors. An investor’s first concern is safety, and that safety is assured by the rule of law. We have a written Constitution; laws are made by Parliament or State Legislatures; laws are enforced by the judiciary which is totally independent; and the superior courts have the right of judicial review of laws as well as administrative action. India has an arbitration law that mirrors the UNCITRAL rules, India accepts international arbitration, and foreign awards are enforceable in India. India has entered into bilateral investment protection agreements with 68 countries, and we are willing to enter into similar agreements with others. 

11. The investor’s next concern is the risk of doing business in India. There is the normal commercial risk, but in a growing economy the risk of failure seems to be extremely low. According to one study, 69 per cent of all foreign owned businesses in India have returned profits on a sustained basis. There is the policy risk. Our experience shows that investors will live with and adapt to any policy, as long as the policy is clear, stable and non-discriminatory. In recent years, we have spelt out our policies either through laws made by Parliament or through reasoned policy documents that are in the public domain. We have made every effort to ensure that the policies provide a level playing field for both the foreign investor and the domestic investor. Finally, there is the political risk, but I dare say that the political risk of doing business in India is perhaps the lowest among the emerging or the fast growing economies of the world. Six different governments have steered reforms though sixteen years without reversing a single reform measure, and that has earned for India an unique credibility. 

12. Our policies and practices have yielded results. Since 1991, both foreign institutional investment and foreign direct investment have recorded a steady and secular rise. Cumulative investments by FIIs as on September, 30, 2007 was US$ 63.63 billion. This calendar year alone has brought in FII investments to the tune of US$ 13.21 billion. Likewise, the cumulative foreign direct investment as on June 30, 2007 was US$ 59.54 billion and, in this calendar year, FDI flows into India have amounted to US$ 11.29 billion. 
13. Given the current exchange rate, India is a trillion dollar economy. Outflows and inflows together account for nearly 106 per cent of the GDP. As the economy becomes more open and trade intensity increases, giant financial flows will be intermediated in India. India is a purchaser of international financial services. A recent report has estimated the value of these services at US$ 13 billion a year and has concluded that this will rise to US$ 48 billion by the year 2015. While India will continue to be a purchaser of financial services, we believe that there is an opportunity for India to become a provider of financial services as well. It is, therefore, our intention to make Mumbai an International Financial Centre. We commissioned a report for this purpose. The report is in the public domain and we are in the process of building a consensus on the key recommendations. It is our intention to make financial services the next growth engine for India. 

14. Ladies and Gentlemen! The outlook for the Indian economy is positive. The factors that are driving the current growth are domestic consumption, rise in investment, increase in employment and increase in productivity of both capital and labour. I do not foresee any change for the worse in these factors. While there are some risks such as crude oil prices and commodity prices, we are confident that we would be able to manage these risks without hurting the process of growth. There is, however, one immediate concern, and that is the huge inflow of foreign funds. We continue to receive large sums of money through export earnings, invisibles, remittances of overseas Indians, foreign direct investment, foreign institutional investment and external commercial borrowing. It is indeed a new situation for us, but I am confident that we would be able to manage the situation. Some measures have been announced in recent weeks, including some measures yesterday. Let me assure you that we have no intention of imposing controls on capital inflows. Nor do we intend to keep out certain kinds of funds. It is common knowledge that developed countries have injected a considerable amount of liquidity into their own markets in order to overcome their own problems. Part of that liquidity has spilled over into India and some other countries. Besides, there is also evidence that foreign investors in some countries may be liquidating their holdings in the securities of those countries and looking for investment opportunities elsewhere. It has, therefore, become necessary to take some measures to moderate the flow of funds into India. That is the primary purpose behind the measures announced by SEBI yesterday, and we believe that they will provide some immediate relief. However, keeping in view the long term, we would have to take more substantial measures to quicken the pace of investment, expand production capacities, increase imports and facilitate more capital outflows. 

15. I presume that none of you is a stranger to India, even at the personal level. If you are, I would urge you to quickly correct that situation and visit India. You will find that there is a new energy in India. You will find that Indian business exudes a high degree of optimism. You will find that among the young in India there is a fiercely competitive spirit. 

16. For us in India, growth is an imperative. Without growth, we cannot address the age old problems of poverty, ignorance and disease. It is growth that has thrown up the resources to spend more on education and health; to build a huge network of roads; to provide telephone connectivity; to take electricity and clean drinking water to the villages of India; and to make the capital investments that will sustain the high rate of growth. 

17. Ladies and Gentlemen! Sixty years ago, the people of India made a tryst with destiny. Until sixteen years ago, that destiny seemed a distant dream. Today – thanks to economic reforms and globalization – we are confident that we can achieve our goals and redeem, substantially, the pledge that we made to our people that we shall wipe out poverty. Every day we add a new line to our growth story. Undoubtedly, it will take us some more years to write the full story but, when that story is fully written, India will be the fourth largest economy in the world. I welcome you to share the challenge and opportunity that is India today.

18. Thank you for your patience and courtesy.