Budget 2025: Mechanism to review financial regulations paves way for responsive policies, experts say

The initiative will also formulate a framework to enhance the responsiveness and development of the financial sector, Sitharaman said in her budget speech on Saturday.

The proposed mechanism will assess the effectiveness of financial regulations and ensure they are aligned with the evolving needs of the market and contribute to stability. It will focus on enhancing the adaptability of the financial sector to future challenges.

The FSDC, established in 2010, has worked to streamline and stabilize the financial sector through inter-regulatory coordination.

Experts said the planned mechanism could pave the way for more streamlined and responsive policies that foster long-term growth, boost investor confidence, and ensure economic stability.

 

Amit Tungare, managing partner at Asahi Legal, described the move as a step toward adaptive financial governance. He highlighted the foresight in creating a structured approach to evaluate regulatory impact.

“By assessing existing regulations and their effects, this mechanism will help reduce compliance burdens and enhance market responsiveness—a crucial balance the financial sector has long needed," he said.

Impartial assessments

The Economic Survey tabled in parliament on 31 January emphasized the need to create independent agencies within financial sector regulators to evaluate regulations from multiple perspectives. These agencies, according to the survey, will report directly to the board rather than the management of the regulator, offering impartial assessments of regulatory processes and their economic and social outcomes.

Sangeeta Jhunjhunwala, a partner at Khaitan Legal Associates, noted that the committee behind this initiative is likely to include corporate experts, industry specialists, lawyers, and representatives from financial regulators.

“This mechanism will streamline complex and overlapping regulatory processes," she said.

The impact assessment will focus on the economic and social implications of regulations. The survey suggested that conducting a cost-benefit analysis of regulations would help regulators become more effective and purposeful, avoiding the pitfalls of broad, cumbersome rules that hinder legitimate economic activity and risk-taking.

Akshaya Bhansali, a partner at Mindspright Legal, suggested that the government involve professional firms to study the impact of regulations.

“The services of professional firms or think tanks engaged in regular impact assessments should be utilized to advise the government on new laws or amendments to existing ones," he said.

The Economic Survey also highlighted that regulatory impact assessment (RIA) is a valuable tool to ensure the quality of regulations. Currently, financial sector regulators are primarily assessed through parliamentary reviews, the department or ministry overseeing their statutes, the Comptroller and Auditor General, and judicial review.

Ketan Dalal, managing director of Katalyst Advisors Pvt Ltd, said the key challenge in assessing the impact of financial sector regulation is the zero-accident approach, which throttles business initiatives.

“Of course, in the financial sector, risks are greater and hence, regulations need to recognise that, and address those risks, but the over-caution/’zero accident’ approach is becoming a major issue, and that approach needs tempering down," he said.

India’s financial sector is regulated by independent entities such as the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory and Development Authority, and the Insolvency and Bankruptcy Board of India.

The survey pointed out that the Union Budget for FY24 had recommended that financial sector regulators include public consultations in their regulation-making process. For FY24, the RBI released 40 discussion papers and SEBI issued 65 consultation papers, a significant increase from the previous year’s 16 and 37, respectively.

Ketan Mukhija, a senior partner at Burgeon Law, emphasized that the proposed mechanism would not only evaluate the effectiveness of current regulations but also develop a structured framework to address regulatory gaps and enhance adaptability.