India eyes oil money parked in Singapore

NEW DELHI: India is eyeing a big chunk of the West Asian oil money that has shifted from the US and Europe to Singapore in the post-9/11 period. This appears to be the key motivation behind New Delhi going in for a liberal financial services arrangement with Singapore under the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) which is now virtually ready for signing.Highly-placed official sources said CECA is a strategic move to tap Singapore as a gateway for investments into India. These investments could come in many forms and amount to billions of dollars over the next few years. This is why despite initial reluctance from the finance ministry, India, at the behest of PM Manmohan Singh, has now agreed to CECA. _Under CECA, India will open its door for Singaporean banks and financial services companies. The agreement also visualises the two countries redoing their double-taxation avoidance agreement on the same line as India's treaty with Mauritius. "Financial services and double-tax avoidance agreements will make Singapore in the next one decade a much bigger conduit of investment flows into India than the Mauritius route has been in the last decade," an official said. Since India liberalised its FDI regime in the early 90s, Mauritius has has accounted for investment inflows of Rs 38,731 crore (about $9 billion) through 1,484 proposals. Singapore is a global financial centre with the presence of 7,000 MNCs and 600 financial institutions. Following 9/11, a large amount of West Asian/Arab oil money, which used to be invested in the US and other Western financial centres, is said to have found its way to Singapore. With Washington intensifying the scan on west Asia money source, US is no longer said to be the preferred destination for West Asian oil money. Much of the money is also on the lookout for investment opportunities in the fast growing Asian economies. If India puts its act together, it could get a large chunk of these investments, an official said. The India-Singapore CECA has four key components: a free trade agreement (FTA) in goods; an arrangement for boosting trade in services, including financial services; a package to promote investment flows and provide mutual investment protection; and a new agreement for avoiding double taxation. India stands to gain mainly in two areas ^ services and investments. Under the FTA, India has to lower duty barriers for goods of Singapore origin without actually gaining much by way of duty reduction for its exports to Singapore. In any case, Indian goods face much lower duties in Singapore than is the case vice-versa. For India to cash in on the investment opportunities, however, it has to allow Singapore players a much bigger space in its market. Under the financial services agreement, therefore, both countries have agreed to provide "national treatment" to each other's banks on entry. Under this, three Singapore-owned banks - Development Bank of Singapore, Keppel Bank and Overseas Bank - will be allowed to open subsidiaries in India. They can open branches in India and carry on operations as if they are "local" banks, subject to the same RBI regulations as are applicable to Indian banks. Similarly, select Indian banks will have easy market access in Singapore, including access to retail banking. Singaporean mutual funds will enjoy the right to invest in shares abroad subject to a ceiling of $1 billion as is applicable to Indian mutual funds. A India-Singapore fund of up to $1 billion is proposed to be set up to channelise private sector investments. Officials said as many as 200 international fund management and private equity firms based in Singapore are interested in India. The financial services arrangement also envisages special visa of 180 days for professionals to travel and provide services in each other's market. Officials said the concessions being offered to Singapore are within the framework of the banking sector reforms being carried out by India autonomously. The FDI policy already allows foreign banks to set up 100% subsidiaries and invest up to 74% in Indian private banks. RBI recently announced a roadmap for implementing the policy of 74% FDI in Indian private sector banks while government last week introduced a Bill in Lok Sabha to remove the 10% cap on voting rights in banks, allowing voting rights to be on par with the stake.