The world's two fastest-growing economies, India and China, are clearly at different stages of development and that makes for unfair direct economic comparisons. But parallels can be drawn here.
Since Prime Minister Narendra Modi came to power last year, his team has faced a big job of plugging India's deficit at a time when public funds are needed to finance critical infrastructure as private companies are mired in debts. While he laid out an ambitious plan to liberalise India's economy and develop ports and roads to attract capital and transform the nation into a manufacturing hub, restoring investor confidence is no small feat.
But India doesn't have to go it alone. China's successful leverage on Hong Kong as a launch pad to engage the international business community serves as a meaningful case study as India further opens up to foreign investment.
What India needs is a partner. A collaborator with India, as Hong Kong is with China, and one that provides greater access to the international investor community. More importantly, one that allows India to better integrate into the global economy and could one day help position the rupee as an international currency.
Hong Kong's role in propelling China and its currency into the global financial arena cannot be understated. As foreign money used Hong Kong as a viable platform to invest in China, the Chinese government used the city as a testing ground for financial reforms.
While Hong Kong succeeded in its role of a financial gateway to China, few countries with a similar proximity to India can fill the same shoes. It will make sense for India to look farther afield.
As an established international financial hub, Singapore stands out. The two governments have had a strong history of co-operation, and Singapore is India's biggest trading partner in ASEAN and one of its largest investors. Singapore can also further support India's smart cities development plan.
Singapore's recent decision to lead construction of a new capital city 10 times its own size for the state of Andhra Pradesh highlights commitment and contribution to India's rise and growth.
Singapore's open trade system and financial markets, coupled with incentives and a competitive tax regime, have already encouraged Indian companies to set up local operations and regional headquarters in the city-state. Indian companies' offshore Treasury needs are also well served by Singapore's foreign currency and interest rate hedging markets.
Singapore is also a natural destination for Indian enterprises seeking to raise global capital. Companies such as Tata Group have sold Singapore dollar debt in the local market.
Last year, Tata's global trading unit issued the first-ever perpetual bond in Singapore to raise $150 million. This came after its successful $50 million fixed-term bond issue in the city-state in 2013. In January of the same year, ICICI Bank-Dubai sold $225 million in bonds.
Here lies a natural progression towards an offshore rupee bond market in Singapore. The Reserve Bank of India earlier this year gave Indian companies the go-ahead to raise rupee bonds abroad in the local currency to be settled in US dollars. This would allow overseas Indians and strongly rated Indian companies to repatriate foreign proceeds. Many overseas Indians already send money home and invest onshore for tax-free returns.
On a more ambitious note, extending from the prospect of more rupee bond sales in Singapore, the city-state could play a key role should India decide to internationalise its currency. Allowing companies to sell offshore rupee debt can be seen as a first small step towards convertibility.
A well-established international currency market, Singapore's experience as a key offshore yuan market will be valuable in replicating the success for greater offshore use of rupee. As of June this year, Singapore's accumulation of 322 billion yuan (S$71 billion) in deposits made it one of the three biggest yuan offshore centres. It is also among the top three cross-border yuan settlement hubs.
Singapore dollar bonds and US dollar debt issued by Indian companies have enjoyed much success in the city-state and many international banks use Singapore as a hub for their trading of offshore India products. This suggests that institutional and retail investors in Singapore understand the rupee risk and buy into the India Inc story.
It would make sense for India to one day consider allowing offshore rupee bonds listed in Singapore to be settled in rupee to reduce transactional costs. Singapore's access to the global investor base and its well-regulated and developed capital market can provide India with an embryonic platform to develop its offshore fund-raising capabilities.
And when India considers a sovereign bond issue, a Singapore listing would provide access to a wider investor base and deeper capital pools.
As India and Singapore celebrate 50 years of diplomatic ties, we need to focus on extending these strong relations. Singapore's commitment to investing in India makes the prospect of it becoming a bridging platform a very plausible outcome, and one which will create greater opportunities for all.
The writer is regional CEO, ASEAN and South Asia, for Standard Chartered Bank.
This article was first published on Nov 23, 2015.
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