FSLRC: Selective Actions by Ministry of Finance - Moneylife

FSLRC: Selective Actions by Ministry of Finance - Moneylife

With reference to the report ‘Don’t Turn Regulators into Paper
Tigers: Rajan’ (Economic Times, June 18, 2014) I had responded asunder:.

In May 2013, in response to an article in a financial newspaper, I
had observed:

Not much research is needed to conclude that finance ministry and FSLRC,
in a hurry to resolve certain minor issues, ignored the evolution of the role
of RBI and the care with which RBI has nurtured the financial sector. Fed
Reserve and RBI function in two different worlds. To say that time is not right
for dismantling or truncating the RBI which is doing creditably well as is
being admitted in several international forums, would be telling the obvious.

The dissenting notes recorded by 4 out of 7 members who signed the final report are well-argued documents, which
inter alia plead the case for maintaining the basic features of RBI and assert
the need for allowing the central bank to carry on with its present mandates.
One wonders what motivated the FSLRC Chairman to finalize the report ignoring
the difference of views expressed especially by K J Udeshi, P J Nayak and Y H

It would appear that the Commission did not get opportunity to
understand the present relationship between the RBI and GOI. The regulatory
apparatus plus legislations in financial sector in India are in working condition. The
FSLRC’s effort to re-invent them has pushed the present regulators and
supervisors to a confused state, making the possibility of an intelligent
debate on the issue remote.

The idea of creating a Unified Financial Agency for all financial
regulators except RBI, truncating RBI by separating Public debt Management and
keeping the agency doing that work (presumably with the same work force) in RBI
premises, later UFA subsuming even RBI, all give a feeling that the FSLRC was
not allowed to ‘apply its intelligent mind’ and in the eagerness to satisfy
all, and so fast, it has forgotten its own brief. Perhaps, the purpose would be
served better, if RBI is allowed to function with its present mandate, a
coordination committee sorts out issues among the remaining regulators. If GOI
aim is to reduce the number of regulators, after necessary groundwork, merger
of the regulatory agencies outside RBI one by one, as work stabilizes could be
thought of. The twin goals of one Unified Financial Agency and managing the
man-power-related issues that may arise with merger here could be better
handled this way.”

The terse indictment of FSLRC report coming from Dr Rajan gives one
the satisfaction that in India, it is not easy even for governments to ‘cut and
paste’ policy formulations to suit individual whims and get away, and wiser
counsel will prevail, though this may take time.

Last week, there was a report in Business Standard that in the new
Monetary Policy Committee, RBI Governor may get veto power(which he enjoys
under the present dispensation). My response published by Business Standard is
copied below:

Beyond ‘give and take’

This refers to the
report “RBI governor might get veto in price stability mechanism”(October 10).
While such gestures to calm dissent are normal in governance, the recent
initiatives from the finance ministry, including the hurry with which some of
the recommendations of the Financial Sector Legislative Reforms Commission are
being pushed through for implementation, gives an impression that new
dispensation in Delhi has not fully recovered from the hang over of the
previous coalition government’s ‘give and take’ approach in decision making.

It would be an
unhealthy message to the regulators and all stakeholders in the financial
system, if such ‘concessions’ to RBI and its present governor appear to be a
privilege available in certain situations. There is a chance of lesser mortals
among regulators becoming less amenable to government’s guidance.

Government should not
shy away from normal procedures and parliamentary debates before implementing
measures of long term implications to the economy. The sooner the transparency
in policy formulation and respect to legislative processes and procedures are
restored, the better for the country.

M G Warrier, Mumbai



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