New Delhi: The Financial Sector Legislative Reforms Commission (FSLRC) headed by retired Supreme Court judge B. N. Srikrishna has recommended steamlining the entire system of capital controls and making it more transparent in the final report that it submitted to finance minister P. Chidambaram on Friday.
The report, largely along the lines of the approach paper, suggests the setting up of a unified financial sector regulator besides the Reserve Bank of India that will combine the functions of the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority, the Pension Fund Regulatory and Development Authority and the Forward Markets Commission. FSLRC also proposed the setting up of a resolution corporation to monitor financial institutions and specifies the role of the Competition Commission of India.
The commission also presented a draft law known as the Indian financial code that will subsume much of the existing legislation. Chidambaram said he will brief Prime Minister Manmohan Singh on the report and the government will look to implement the recommendations quickly. The report will be made public in the next 3-4 days.
The finance minister had promised to act decisively on the recommendations of the committee in his budget speech last month. He had said the government will set up a standing council of experts in the finance ministry to analyse the international competitiveness of the Indian financial sector and periodically examine the transaction costs of doing business in the Indian market.
The regulatory system should be framed in a way that the common man can understand it, said Bimal Jalan, former governor, Reserve Bank of India.
“We have too many laws and legislation which leads to confusion,” said Jalan. “So, it is good to streamline the systems but it is not to say that the policy approach should be changed and anyone should be able to bring in money and take out money at their will.”
The government constituted FSLRC in 2011 under Srikrishna to study possible reforms in the financial sector. The committee had submitted its approach paper in October last year. Other members of the commission include D. Swarup, former PFRDA chairman, former deputy RBI governor K.J.Udeshi, Y.H. Malegam and P.J. Nayak, head of Morgan Stanley India.
“The final recommendations are along the lines of the approach paper. But we have taken into account the feedback that we have received. We have also included some provisions that were not there,” said Srikrishna.
Swarup pointed out that the approach paper did not discuss capital controls and the final report is trying to look at the role of regulators and government agencies with regard to capital control.
“Today there are so many agencies handling capital control. RBI, department of industrial policy and promotion, foreign investment promotion board, FEMA (Foreign Exchange Management Act), Enforcement Directorate. There is a lot of confusion. We have removed that confusion and have not created any new organization. We have just designated responsibilities,” said Swarup.
He explained that the report will clearly designate which organization will make rules, which will implement them and which will enforce them.
“Today, they have press notes. Is anywhere in the world policy announced through press notes. That is not how policy is formed. We have given a sound legal foundation. Everything will be transparent and will be in the public domain. And any changes will follow a consultative approach,” he said.
The report also urged that the Financial Stability and Development Council (FSDC) be made a statutory body with more powers. It also suggested the setting up of a financial data management centre in the FSDC that will collect information from all regulators and keep a watch on how each financial conglomerate is doing. It will not be a regulator but work as a monitoring and supervisory agency.
A financial conglomerate is on with interests across sectors such as banking, insurance and mutual funds. The FSDC also favours a separate debt management office.
Deepti Bhaskaran contributed to this story.