When Percy Mistry, a former World Bank economist and chairman of the high powered committee on 'Making Mumbai an International Financial Centre' resigned from the committee in February this year, it revealed the deep division within the committee over the contents of the report.

Mistry says he will stand by the report's recommendations but not by the full report as many of his arguments were deleted in the final version. Mistry, who runs Oxford International group, a private investment advisory firm and shuttles between Mumbai and Oxford, took time off from his busy schedule to speak to Business Standard on what the recommendations mean for the country's financial system and what needs to be done to make Mumbai a financial centre which would compete with the likes of New York and London. Excerpts:

Are you surprised by the reaction generated by your report with many saying that it would remain a pipedream as Mumbai's infrastructure is not up to the mark?

Most of the reactions so far have been very quick and superficial. I am disappointed by some editorials. Though the lack of Mumbai infrastructure reflects the ground situation to a certain degree, we should not say that we can never become a financial centre in the next 20 years. See what happened to us after 1991.

If we do not have a financial centre for an economy of our size and which is globalising at the pace it is today, it would be an act of irresponsibility simply because it results in leakage of our balance of payment. The lack of reforms in our political, legal and financial systems is just as serious a bottleneck as infrastructure.

Can the rupee be made convertible by end-2008?

I agree with the Tarapore report on fuller capital account convertibility except for the time frame set. We should be expediting the convertibility and with set deadlines. If we can offer the same financial services which London or New York offer then our corporates need not go abroad. Why should Ratan (Tata) and Kumar (Mangalam Birla) go to London to raise funds for their acquisitions and consult yet another Indian there working with an international firm when the same services could be offered from Mumbai?

Given the present political set up, how optimistic are you that the report's recommendations would be accepted by the government?

My job was to answer a question. I have made the roadmap and it is up to the policymakers to implement the plan. You can say that I was a general and I have devised a plan to make Mumbai a financial centre. I am very optimistic that if we unshackle the financial system, the country would make great progress in terms of financial liberalisation. By not opening up the sector, we are not creating new jobs for the new generation. By opposing the opening up, political parties are protecting the existing jobs and not creating new jobs in the country.

By delaying the implementation of the report, the country would lose $15-20 billion every year that we delay opening up of the sector. If we decide to be protectionist, it would cost us badly. Exports of financial services from India would surpass the exports of infotech, communications and the telecom (ICT) sector by 2025 if we unshackle the system today. The policymakers have to now make a decision in the national interest.

There could be opposition to the report from various quarters including the trade unions.

The resistance is likely to come from anyone who would like to maintain the status quo to protect their own turf. There could be some genuine arguments to oppose the opening up of the sector and the government should discuss these to find a way out. The Indian financial sector is still grappling with the licence-permit raj whereas these restrictions were removed for the real sector in 1991. The gap between the two has widened since then. We are hearing the same arguments against the opening up of the financial sector that we used to hear about the manufacturing sector by the so-called Bombay Club.

The Indian manufacturing sector has become world class since then and many inefficient companies died the way which they ought to die. For example, Hindustan Motors had got a licence from the government to print money for 50 years as competition was not allowed. They did not make any innovation for years to even the grill of the car but as soon as competition came, they fell by the wayside. The financial sector is the heart and the brain of the economy which needs a similar dose of reforms.

PSU banks are unable to compete with the private sector. What future do you foresee for them?

The Indian public sector banks are the victims of a restrictive work environment and this reflects in the way they operate. While private sector banks have a single regulator, public sector banks have to answer multiple regulators like the unions, the government and the RBI. Their mindset is still in the '70s and '80s while the ICICIs and HDFCs are still 10 years behind the current global financial giants.

The regulators have come in for some sharp criticism in your report. What is wrong with the regulatory system?

Today in India we have multiple regulators for almost all sectors of the financial sector. We have the RBI for the banking, Sebi for the markets, the Forward Market Commission for commodities and the IRDA for the insurance sector. This has resulted in confusion and complexities of roles. Sebi and the FMC could be merged as both deal with financial contracts. The RBI is playing multiple roles.

The government taking over SBI's equity from the RBI was an opportunity lost as these shares could have been sold to the public and its shareholding could be broad-based. Today, 74 per cent of HDFC and ICICI Bank are owned by foreigners, but they are still known as Indian entities. We have to get over this fear of foreigners. In fact, when the foreigners come here we have the opportunity to Indianise them and create more global Indians.

Sources said the regulator was now even more keen to create a separate trading platform exclusively for the SMEs, especially since several of the regional stock exchanges where these stocks were listed, are more or less defunct.

Sources said once the companies grow bigger (Rs 25 crore market-cap and above), the NSE would put them on its main trading platform.