The Bombay Plan of 1944 was a milestone in India’s economic policy thinking: it laid down the blueprint for how India must industrialise. The ‘Mumbai International Financial Centre’ (MIFC) report is ‘Bombay Plan II’, a comparable blueprint for how India must globalise. It is the first coherent and intellectually consistent set of ideas for how fiscal, financial and monetary policy need to change, for harnessing the opportunities and facing the threats of globalisation. The implementation of this report over coming years will be a key element of India’s strategy for accelerating growth.

MIFC is superficially about achieving huge exports of financial services. But it runs much deeper. Export-orientation will require achieving competition and efficiency in finance, exactly as export orientation gave us competition and efficiency in the real economy. As Raghuram Rajan has emphasised, a better financial sector improves entry and competition in the economy. Improvements in the quality of finance give us better bang-for-the-buck in converting investment into GDP growth. As example, the US has an ICOR (incremental capital output ratio) of 5-7, while Germany and Japan have ICORs of 12-15. This difference is partly about the remarkable US financial system. The MIFC report gives us a game plan for obtaining a world class, globally competitive financial system. This is useful because we make money on exporting financial services. But the real importance lies in accelerating GDP growth. In my view, the implementation of this report alone will add roughly 2 percentage points to India’s growth.

The report is on the right track on fiscal questions. Unlike many lobbying efforts, the report asks for no special tax breaks or setting up a tax-exempt enclave. It emphasises sound principles: bring down the debt/ GDP ratio, not tax exports, and integrate finance into the GST.

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