Cities of gold

Mumbai has as much a chance of becoming an international finance centre as does Mexico City. Achieving the stature of a London or a New York, or even a Hong Kong or a Singapore, is fine as far as aspirations go, but the chances of achieving that standard are as remote as those of Mumbai's second airport — proposed more than two decades ago — coming up in the foreseeable future.

These are not the predictions of a doomsaying Mumbaikar, although you shouldn't have a problem lurching into such merchants of gloom in the city. Rather, these conclusions have been deduced from a biannual study that the Municipal Government of London has been commissioning on the top global financial centres (GFCs) since March 2007. The study, unsurprisingly, has always had London at No. 1, although the latest one for March 2010 has New York sharing the top slot (see The Top Financial Centres).

If you're wondering where Mumbai figures, it's at 58 amongst 75, down five places from the previous study, and rubbing shoulders with the likes of Mexico City (57), Rio de Janeiro (54, although Brazil does have Sao Paulo at 40) and Bangkok (61).

Apart from competitive factors like quality of service and availability of people that determine the ratings, this study on GFCs looks at three other aspects — the speciality or depth of services available in a city, the diversity or breadth of such services, and connectivity which, according to the study, is the key to a financial centre growing in stature. Respondents from across the globe are asked to assess financial centres that they are personally familiar with.

The number of inbound assessments — responses from people at other centres — is used to judge how global a centre is. The study divides the 75 financial centres into three parts as per their connectivity. Sixteen of them are Global, while another 29 have been grouped as Transnational. The remaining 30 are local financial centres.

The cities are then grouped again as per the range of services they offer. Hong Kong, Singapore, Chicago, Frankfurt, Toronto and Zurich join London and New York as the top GFCs, offering 'broad and deep' services. Amongst the 'emerging' GFCs, we have Beijing, Dubai, Moscow and Shanghai.

Mumbai appears in the second rung — the Transnational Financial Centres (TFCS). Leading this pack is Tokyo, which has a rating higher than some GFCs like Zurich or Toronto, but loses out on connectivity. It has cities like Boston, Stockholm and Melbourne as the top TFCs. A lot of European cities are diversified TFCs — Amsterdam, Copenhagen, Dublin, Madrid, Milan and Vienna along with South Korea's Seoul.

Almost all the specialist TFCs are in island nations that can also be tax havens — the British Virgin Islands, the Cayman Islands, Taipei and the Isle of Man. Keeping Mumbai company among the emerging TFC contenders are Bangkok and Kuala Lumpur.

The ideal route for Mumbai would be to move from being an emerging TFC to a diversified TFC and then get into either the emerging GFC slot or that of an established TFC with depth and breadth. Interestingly, there are some cities that have a higher rating than Mumbai but are not considered TFCs, only as Local Financial Centres, which form the third and lowest rung. Among them are Washington DC and Johannesburg — considered broad and deep LFCs.

The traditional GFCs of Hong Kong and Singapore figure at No. 3 and No. 4, respectively, ahead of the emerging centres like Dubai, Shanghai and Beijing. Notwithstanding the rapid strides being made by the emerging economies, Hong Kong appears likely to cling on to its pride of place for some time to come. "Hong Kong has a huge hinterland advantage with access to a Chinese customer base, which is not the case with Singapore," says Ajay Srinivasan, Head of Financial Services at the Aditya Birla Group, who has spent four years in Hong Kong with Prudential Asia.

"Many Chinese companies raise billions of dollars through the Hong Kong market. The liberal tax laws — both for individuals and companies — make Hong Kong and even Singapore attractive destinations for corporations and financial services companies," he adds. The hinterland is an advantage that Mumbai shares with Hong Kong. But that may be the only one, what with the capital account unlikely to be opened up in the short term, and tax and legal reform moving at a snail's pace.