Indian securities market among the best regulated

OPINION/ P Chidambaram

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 take-over 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.

We recognise that India is one among a hundred destinations where a foreign company can make an investment. 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. We also recognise 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.

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 16 years without reversing a single reform measure, and that has earned for India a unique credibility.

The outlook for the Indian economy is positive. There is, however, one immediate concern, and that is the huge inflow of foreign funds. It is indeed a new situation for us, but I am confident that we would be able to manage the situation.

(Excerpts from Finance Minister P Chidambaram's speech at the ICICI Securities Annual Investor Conference, New York, on October 18, 2007 )