Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / Stop the task forces, Mr Jaitley
BackBack

Stop the task forces, Mr Jaitley

The finance minister should listen to the dissenting voices from FSLRC as well as engage in fresh consultations

Photo: Atul Yadav/ PTI Premium
Photo: Atul Yadav/ PTI

There is something common between the finance minister of India, most of India’s poor and some of India’s rich—financial exclusion. The last category chooses to exclude itself. The middle one is excluded and the first one—the minister—is being excluded from financial policymaking. In his absence, certain decisions with far-reaching consequences for the financial sector and for the economy are being pushed through without deliberation.

Just last week, the finance ministry announced the formation of four task forces that would apply themselves to specific issues and arrangements envisaged in the Financial Sector Legislative Reforms Commission (FSLRC) that submitted its report last year. The notifications constituting these four task forces issued by the ministry were based on a decision taken at the meeting of the Financial Stability and Development Council held on 24 October 2013. The previous government was in office then. It was policymaking by stealth of an unusual variety. Even the minister in charge was not part of it.

This government has been dismantling—quietly and correctly—some of the most bizarre and pernicious policy decisions of the United Progressive Alliance government. It needs to do the same to the recommendations of FSLRC and not allow itself to be led blindfolded by so-called experts. This government needs to engage in fresh consultations on the report of the Commission.

The Commission, as constituted by the finance ministry in 2011, had 11 members. One of them, from the ministry, was meant to provide administrative support. Out of the remaining 10, one was member, convenor and the other was a joint secretary from the capital markets division of the ministry. Quite interestingly, he did not sign the report. Out of the remaining eight, two were former judges who had no prior knowledge of the financial sector. In any case, one of them was so seriously ill that he could not sign the report. That left six of them. One of them passed away within the first few months of the appointment of the Commission. Out of the remaining five, Govinda Rao was an expert on tax matters and the other, Jayant Varma, was an expert on capital markets. Three of them—P.J. Nayak, K. J. Udeshi and Y.H. Malegam—were concerned with banking regulation, monetary policy and capital flows. All three appended dissenting notes on several important recommendations of FSLRC. That is 100% dissension on the Commission’s recommendations from the domain experts. No finance minister should disregard such an overwhelming consensus on the rejection of the work of a Commission of which they were a part.

The Commission’s report had recommended that the central bank would eventually confine itself only to monetary policy. In the interim, it would be responsible for micro-prudential regulation of the banking sector but that would be taken away from the central bank. The Commission did not take cognizance of the linkages between monetary policy and banking regulation. It divided the regulation and oversight of capital flows into capital inflows and outflows and wanted to vest the regulation of inflows with the government. The Commission proposed vesting macro-prudential regulation of the banking sector in the Financial Stability and Development Council by making it a statutory body under the chairmanship of the finance minister. These recommendations flew in the face of the worldwide trend towards vesting regulatory powers in independent bodies that had minimal or low chances of political interference. Further, after the global crisis of 2008, the US, the UK and the euro zone had moved to strengthen banking supervision in their respective domains by placing them under the control of the central bank. The Commission’s recommendation, lacking any rationale, went in the opposite direction.

On monetary policy, an areas that FSLRC so magnanimously left for the Reserve Bank of India to handle, it proposed the setting up of a Committee stuffed with majority of nominees from the government—a practice that is prevalent, if at all, in tinpot banana republics. One should not be surprised that the three learned and experienced members of the Commission rejected these recommendations. Indeed, when the Commission’s report was first released last year, this column had argued that India needed another Commission to look into the issue of legislative reforms for the financial sector. Another column written after the results of the national elections were announced in May had cautioned the finance minister against proceeding with the recommendations of FSLRC.

Now, this piece concludes with an appeal to the finance minister to suspend the work of the task forces that would provide the building blocks for the implementation of the recommendations of FSLRC until he has had a chance to speak to the members of the Commission who dissented on its core recommendations.

V. Anantha Nageswaran is co-founder of Aavishkaar Venture Fund and Takshashila Institution.

Comments are welcome at baretalk@livemint.com. To read V. Anantha Nageswaran’s previous columns, go to www.livemint.com/baretalk

Follow Mint Opinion on Twitter at https://twitter.com/Mint_Opinion

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 06 Oct 2014, 03:45 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App