India "facing threat of regulatory arbitrage" India needs to streamline regulations to attract greater foreign capital and fend off a growing threat of financial activity moving to other countries, the outgoing head of the country's largest stock exchange has said. Ravi Narain, who this month stepped down as chief executive of the National Stock Exchange, warned that competitor nations are using favourable regulatory regimes to attract business away from India, threatening the growth of financial markets in Asia's third-largest economy. "If you look at economies outside of India, it is relatively easy for them to supply financial services [to India]," he told the Financial Times in an interview. There is a great deal of regulatory arbitrage between India and some other jurisdictions and we need to tackle that. India's Financial Sector Legislative Reforms Commission (FSLRC), a long-term independent review established by the government two years ago, last month proposed wide-ranging changes to modernise the country's fragmented system of regulations. The FSLRC suggested that four separate financial regulators, covering areas including markets, forward contracts and insurance, should be unified into one body, while its report warned that "difficulties in regulation" could see Indian financial transactions moving offshore. "There is a plethora of rules and regulations which define access to foreign capital, where other jurisdictions will say we have no bottlenecks at all, you may come and go as you please," Mr Narain said. India needs to take each of these pieces and look at them very, very carefully to ensure we are globally competitive. Although Mr Narain declined to name specific jurisdictions that engage in regulatory arbitrage, other financial markets experts believe the country is at risk of losing out to other Asian financial centres, including Singapore and Dubai, as well as western financial capitals such as London and New York. "It is happening more and more that people are moving abroad," said Venky Panchapagesan, associate professor and specialist in Indian markets at the Indian Institute of Management Bangalore. Equity derivatives are going to Singapore, gold is in Dubai, but it can also be equities trading on the US markets, or currencies that are traded in both Singapore and London. Investor faith in India's financial system was dented badly last year after the proposed introduction of a series of controversial anti-tax avoidance rules, which critics argue would see double and retrospective taxation of investment deals. The rules have currently been put on hold until 2016. However, Mr Panchapagesan cautioned that, while international investors were increasingly worried about factors ranging from higher taxes on financial transactions to increased disclosure requirements, they also often picked jurisdictions outside of India that offered greater regulatory protection. "From a regulator's point of view, it is a problem if some of this activity moves overseas because they like to see the totality of what is happening in India," he said. But from an investor's point of view, it might not be such a big problem, because the legal system is actually stronger in countries like Singapore.