For deeper financial & commodity markets–economic times

Clipped from: https://economictimes.indiatimes.com

Two welcome developments in domestic financial markets have taken place in the past week. Banks have begun participating in the offshore rupee derivatives market; and a pan-India power market with one-hour-ahead delivery is now functional.

Deepening financial markets would bring about better allocation of scarce resources, boost risk mitigation and also provide quality jobs.

There remain capital controls on the rupee, but we now have very liquid markets for the rupee overseas, the non-deliverable forward (NDF) market, settled in a convertible currency like the US dollar. In fact, forward contracts on the rupee traded over the counter in financial centres offshore now rival onshore currency markets, and they have an increasing role in price discovery here. The way ahead is for banks to leverage local knowledge, expertise and skills to gainfully boost market share in rupee trading.

In tandem, the Reserve Bank of India (RBI) needs to liberalise participation in the offshore rupee market by providing easy access to foreign funds and other stakeholders in GIFT City.

Financial services are, of course, skill- and technology-intensive and offer India competitive advantage. We must policy induce synergy between Indian markets, local information, local order flow and local liquidity. The idea of Atmanirbhar Bharat must not be confined merely to goods. Mumbai has real potential to figure among the top five global financial centres. Thriving financial markets would rev up productivity gains.

India now has a real-time power market. It should lead to more optimal capacity usage and better demand management. We need a vibrant market for commodity derivatives, and, to that end, a large variety of participants, and a predictable regulatory framework in place.

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