The government is likely to go ahead with its road map for developing
the bond, currency and derivative markets, although experts such as
former RBI governor C Rangarajan have said it could review the road
map for new products in the light of developments in the US.
The finance ministry believes the Indian financial sector regulators
have been more circumspect than western regulators and, therefore, the
market could be opened further. Notwithstanding the role that
investment vehicles like credit derivatives played in the collapse of
investment banks in the US, the government believes it should try to
bring a substantial part of the global financial services industry to
India's financial capital Mumbai.
Government sources said the country should capitalise on the current
weakness in the western financial services sector to develop the
financial services industry in the country. At present, many corporate
houses go to offshore financial service hubs such as Singapore to meet
their financial services requirements.
Hence, exchange-traded derivatives such as interest rate futures and
credit derivatives are likely to hit the local market soon. Government
sources said that exchange-traded interest rate futures would be
introduced by February 2009.
The finance ministry is now closely observing how the recently-
launched exchange traded currency futures market is working. It is of
the view that the spread in these contracts is declining, which
indicates increasing liquidity — a good sign. It will observe the
performance of the market for some time before finalising the norms
for other products, it is understood.
The ministry would also consider liberalising the currency futures
markets by allowing NRIs and FIIs to invest in these after studying
the performance of the market. The finance ministry's idea is to
create a financial services market that is missing as of now in the
country.
While big corporate houses can shop abroad for the sophisticated
products they need to hedge currency and other risks, small and medium-
sized companies, which compete with imported products here — price of
imported rival products is also a function of exchange rate
fluctuations — are not able to hedge their economic exposure to
exchange rate fluctuations.
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