New Delhi: The government’s ability to move a Bill to replace the 18 June ordinance to settle a regulatory turf war over unit linked insurance plans, or Ulips, has been crimped, with key constituents of the Opposition signalling their resistance.
The ordinance set up a statutory joint committee headed by the finance minister to resolve regulatory disputes over hybrid investments that combine the features of bonds, equities and insurance, sparking concerns that it could erode the independence of key regulators, including the Reserve Bank of India (RBI).
“It is a very bad idea to have a super regulatory body in the finance ministry under the chairmanship of the FM (finance minister),” says Yashwant Sinha, a Bharatiya Janata Party (BJP) member of Parliament and a former finance minister.
According to him, it is inappropriate for a finance minister to head a review panel to settle turf wars between regulators because the minister may lack the expertise to adjudicate over such disputes.
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“I don’t support the idea,” said Sinha, who is also the chairman of the standing committee of finance, the parliamentary body that oversees legislation referred to it by the Lok Sabha.
The Left parties have indicated similar opposition to the ordinance, which was aimed at ending a dispute between the Securities and Exchange Board of India (Sebi), the capital market regulator, and the Insurance Regulatory and Development Authority (Irda) over who should have oversight of Ulips. The government allowed Irda to continue regulating Ulips.
Given the new dynamics in the opposition, with the Left and the BJP uniting to combat the government on key issues such as inflation, it is not clear whether the Congress-led United Progressive Alliance (UPA) would be able to push through the legislation in the monsoon session of Parliament beginning on 26 July.
The UPA’s strength in the Lok Sabha is barely above the majority mark.
The month-long session is expected to be stormy, with a united Opposition having vowed to challenge the government over its inability to contain prices and tackle a worsening internal security situation.
In the run-up, the BJP-led National Democratic Alliance and the Left-led non-Congress, non-BJP parties together observed a nation-wide strike on 5 July against the government’s decision to increase fuel prices.
The Communist Party of India-Marxist, or CPM, has not yet taken an official stance on the ordinance, said general secretary Prakash Karat.
“We are aware of the ordinance and the issue. However, the party has not discussed the issue yet,” he said.
The four financial service regulators—Sebi, Irda, RBI and the Pension Fund Regulatory and Development Authority (PFRDA)—would be represented on the dispute resolution committee that will be headed by the finance minister.
A senior finance ministry official had earlier told Mint that none of the regulators was consulted on the ordinance. The central bank has expressed apprehension about the ordinance, which it says is liable to misuse and undermines its authority.
Finance minister Pranab Mukherjee said last week that the government would protect RBI’s autonomy. He, however, declined to disclose details of how the government would mitigate RBI’s concerns.
According to Sinha, instead of promulgating an ordinance, the ministry could have stuck to its original decision of allowing the judiciary to decide on the Sebi-Irda turf battle.
Alternatively, it could have asked the regulators to approach the Competition Commission as the dispute is primarily about competition between regulators over jurisdiction of a financial product. Sinha suggested that another alternative could have been to empower RBI, the oldest and most experienced regulator, to settle any such disputes.
The extent of political opposition to the ordinance would become clearer by next week, by which time Left parties are expected to take a formal stance. Gurudas Dasgupta, a Communist Party of India parliamentarian, who is a member of the standing committee on finance, declined to comment on the issue as he had not yet studied the ordinance.
The changes promulgated in the ordinance will have to be tabled in the form of amendments to attendant legislation in the monsoon session. Typically, contentious legislation is sent for close scrutiny to a bipartisan parliamentary standing committee. The committee makes suggestions which the government may accept before it tables the legislation once again in Parliament.
The decision to move the legislative amendments to the standing committee is the prerogative of the Lok Sabha.
“It is up to the Speaker or the House to decide if a Bill has to go to the standing committee,” Subhash C. Kashyap, former secretary-general of the Lok Sabha, said. “Either the majority of the House or the Speaker will decide if it has to go through any parliamentary committee.”