Indias push towards further strengthening the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) fits well with the objective of Indian economic growth. Growth of the economic region surrounding India, with India taking the lead is critical.
The “Economic Cooperation” aspect of BIMSTEC is one in which India can contribute significantly by helping to create the financial architecture that will lay the foundation of an economically viable framework for BIMSTEC nations to all benefit from.
India’s objectives of boosting inter-regional trade and of increasing its exports would imply that India needs to move ahead with its plan to establish itself as a South-Asian financial hub that can cater to facilitating both trade and financing for the region. The financial sector must be viewed as both a growth area and an area that will promote the growth of other industries that currently need funds.
While the countries in the BIMSTEC region vary in terms of GDPs and economic growth levels, they are combined by the fact that with growth and rising incomes a region with a population higher than 1.5 billion people and a combined nominal GDP of $3 trillion has potential for further growth, especially as access to financial services improves.
As incomes rise, access to financial services will be required further in the BIMSTEC region. Households will need access to instruments that allow them to save, invest, plan for retirement and insure against exigencies. In common parlance, access to financial products will be required.
This financialisation of the economy implies access to financial products, insurance, pension funds etc. The need for greater access to financial products is why India needs to step in and utilise upcoming financial infrastructure assets such as the International Financial Services Centre and other similar assets to facilitate the financial sector in these countries.
Essentially, as the mutual funds, insurance and pension industries grow in the BIMSTEC region, India must create financial hubs that can facilitate these industries in the BIMSTEC countries. Going a step further to cement its position as a South-Asian financial hub even more, India needs to help provide liquidity by potentially allowing for companies in the BIMSTEC region to list on special bourses in India. The aim is the agglomeration of financial services to help boost regional economic ties.
India, like other nations, has faced recent challenges around financing exports and infrastructure. While short-term export financing, which can be broadly termed as trade finance and long-term infrastructure financing are primarily viewed as two ends of a spectrum, they feed the demand for each other. Having a robust market for one type of funding without the other is difficult, if not impossible. Many infrastructure assets such as ports, roads and railways are dependent on trade, which in turn is highly dependent on trade financing. Demand for infrastructure assets that makes such assets attractive to investors is highly reliant on a vibrant trade finance market.
Therefore, it is not surprising to see countries such as Singapore with top-notch trade finance markets having world-class infrastructure as well. The foregoing discussion on the linkage between trade finance and infrastructure financing is another vital factor as to why India must look to position itself as a South-Asian finance hub. Allowing
both domestic and foreign capital, to finance export growth within the BIMSTEC region while utilising the Indian financial centres will be vital to ensure that the flow of capital remains intact.
The most critical element for boosting economic growth in both India and its trade partners in BIMSTEC is to view the financial inter-linkages in exports, infrastructure and capital markets as one chain of economic phenomena with various parts that all equally important, and not as silos that can be grown individually. An economic and investment hub in India for the BIMSTEC region that will allow financing of economic growth, exports and assets will drive real economic growth across the spectrum.
The economic success of BIMSTEC will be mostly dependent on the ability to create common financing linkages that allow trade, finance, infrastructure and, most importantly, economic growth to flourish in the region. India’s role must be to lead the pack towards creating the financial architecture that can serve as the underpinning of BIMSTEC.
(The views expressed in this article are personal and that of the author)