Come the winter session of Parliament, the Narendra Modi government will be seeking its approval for the proposed Indian Financial Code that would replace 60-odd archaic laws to herald a regime of principle-based, as opposed to sector-specific regulation, in one of the biggest generational shake-up in the financial sector.
The draft Code is now being finetuned on the basis of comments of stakeholders and would be put up again in the public domain around mid-2015 before the final version is placed before the Parliament in November-December, sources told FE.
The Financial Sector Legislative Reforms Commission (FSLRC) chaired by Justice BN Srikrishna, set up in March 2011 with a mandate to rewrite the financial sector laws to harmonise them with the new requirements, submitted its report to the finance ministry in March 2013.
It has recommended revamping the legislative framework of the financial sector regulatory architecture, restructuring of existing regulatory bodies and creating new agencies wherever required.
It also made a slew of non-legislative recommendations to enhance consumer protection and greater transparency in the functioning of financial sector regulators.
Determined to implement the FSLRC recommendation to usher in reforms in the financial sector, finance minister Arun Jaitley announced several measures such as merger of the Forward Markets Commission with Sebi, the setting up of a sector-neutral Financial Redressal Agency and come out with proposal in the Finance Bill to set up an independent Public Debt Management Agency (PDMA). Separately, the government and the RBI have signed a Monetary Policy Framework Agreement that mandates the central bank to adopt a flexible inflation targeting of 4% (+/-2%) in the medium term.
More than with any other regulator, the biggest regulatory shake-up in a generation has created some discord between the RBI and the government on the composition of the Monetary Policy Committee that would guide monetary policy. Also, the proposed shifting of the government bond market to Sebi and setting up of PDMA to manage government debt has created some discomfort for the RBI.
The draft Code seeks to move away from the current sector-wise regulation to a system where the RBI would deal with monetary policy and regulate banking and payment system while a Unified Financial Agency subsumes existing regulators — Sebi, Irda, PFRDA and FMC — to regulate the rest of the financial markets.
Along with the proposed implementation of the uniform Goods and Sevices Tax from April next year, analysts expect the implementation of the Code would boost India’s economic growth.
The Modi government is also in the process revamping a number of other laws, including the ones governing land acquisition, companies and prevention of corruption, to improve India’s ease of doing business ranking to 50 in three years. India came in 142 in World Bank’s latest ease of doing business ranking of 189 countries.
Move to replace archaic laws -Action taken by the government on FSLRC recommendations
* The draft Indian Financial Code finetuned, likely in the winter session of Parliament
* A task force set up to upgrade existing Securities Appellate
Tribunal to the Financial Sector Appellate Tribunal
* Task forces set up to establish new agencies such as Resolution Corporation, Public Debt Management Agency and Financial Data Management Centre
* A task force will be formed in April to help set up sector-neutral Financial Redressal Agency
* Amendments to RBI Act proposed in the Finance Bill to set up PDMA