'GIFT is just another Modi vanity project like Make in India'

'The GIFT will create regulatory crisis for RBI, Sebi'

Percy Mistry, chairman of the committee which drafted the report on developing Mumbai as an International Financial Centre, has opposed Narendra Modi government’s proposal of following Gujarat’s GIFT City model in Mumbai without regulatory ring-fencing and basic infrastructure.

Replying to a query on promotion of GIFT City, near Ahmedabad and Mumbai, as IFC during Make in India Week last week, Mistry said this kind of emotive exuberance is obscuring the fundamental underlying policy failures and foundational deficiencies in the Indian economic and financial system with advertising slogans and mega events that distract attention from real problems.

“The GIFT is just another Modi vanity project like Make in India, Digital India, Clean India, Connect India, Support Start-ups and all the other slogans and schemes that have become gospel over the last few months.

GIFT is a non-starter; unless, of course, many arms are sorely twisted and domestic as well as foreign financial institutions are forced to do things that they really should not be doing (like leasing space in GIFT which is going to be left empty for a very long time), in order to please the authorities to avoid awkwardness in their daily business and tax dealings,” he said in an email, responding to a query.

During Make in India Week, both Maharashtra Chief Minister Devendra Fadnavis and Gujarat Chief Minister Anandiben Patel tried wooing investors to their respective IFCs -- triggering a competition of sorts between Mumbai and GIFT City.

Mistry, however, said that given the problems with regulations in India, and the manner in which any opening for regulatory arbitrage (especially in the financial system) is instantly exploited, this kind of approach may lead to chaos.

“It will be the kind of madness that the RBI will not be able to contain or manage.

"Neither will Sebi, which has many profound difficulties of its own, be able to handle this.

"The RBI has not been able to manage even its own simple business of banking regulation/supervision. Its gross regulatory/supervisory failures from 2010 onwards are now visible for all to see, in the egregious level of non-performing assets that have emerged in the state-owned banks,” he said.

“What was the RBI doing when the SOBs were reporting huge fictitious profits and paying out large amounts of dividends and taxes which they should have retained to meet their provisioning and capital needs?

"These gross failures of the RBI are now being covered up by draconian, but hopelessly belated, measures for accelerated provisioning and write-downs which are over-stretching the fragile balance sheet elasticities of all public banks.

"And this (is happening) at a time when the government’s capacity to recapitalise them is in serious question.

"It amazes me that people still think the RBI is doing a great job with a great Governor who should have seen the rot in bank portfolios immediately upon taking office three years ago,” he said.

Mistry said things at market regulator Sebi are also in bad shape.

“Though its ambitions are commendable, its capabilities are severely limited.

"Its management and staff capabilities are already hopelessly over-extended as it attempts to deal with too many issues of malfeasance by too many players on too many fronts all at the same time.