View from City Road: India remains the poor relation

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The Indian parliamentary committee investigating the Bombay stock market scandal has come up with a nuclear solution - a weapon so devastating nobody in their right minds would use it.

The idea that the Indian government would withdraw the banking licences of the four biggest foreign banks in the sub-continent in retribution for their involvement in a securities scam is absurd. India needs foreign banks if it is to carry through its stalled plans to deregulate financial markets.

Indeed, the economic system is in the midst of enormous change, designed to realise India's potential by raising growth to the levels of more open Far Eastern markets. UK institutional funds are lining up to invest in what they hope will be the new economic miracle.

The four foreign banks caught up in the stock exchange scandal have much to answer for, since their own employees appear to have been accomplices in diverting funds into stock market speculation, and a large amount of cash went missing.

Yet this was also an abysmal failure of regulation. The Indian finance ministry, the stock exchange and the Reserve Bank of India were, after all, sitting at the centre of events yet failed to prevent the flood of money into speculative investments.

Standard Chartered has learnt costly lessons from the scandal, and reinforced the impression that it is accident-prone. But the report does not undermine the recent share-price performance, which has been prompted by the company's strong position in Hong Kong and the Pacific Rim. India has never been a jewel in its crown, and that will not change until the economy is fully open to the outside world.