Finance Minister Nirmala Sitharaman is all set to review the state of the economy at the 26th meeting of the high-level panel of the Financial Stability and Development Council (FSDC) on Thursday, 15 September 2022. Experts will review the current global and domestic economic situation and financial stability issues, including those concerning banking and NBFCs, during this meeting which is to be held in Mumbai. In the previous meeting, which was held earlier this year in February after the Union Budget 2022 was presented, regulators were asked to maintain a constant vigil on the Indian financial sector.
What is the FSDC? What exactly does it do?
The Financial Stability and Development Council (FSDC) is an apex-level body set up by the government in consultation with financial market regulators, to strengthen the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development. The council is headed by the Union Finance Minister – at present Nirmala Sitharaman. The Additional Secretary, Ministry of Finance serves as the secretary of the council. It has the RBI Governor, Chief Economic Advisor, Secretaries of the Department of Economic Affairs, Financial Services and the Ministry of Corporate Affairs, Ministry of Electronics and Information Technology, and Revenue Secretary as members.
Chairpersons of all major regulators such as the Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), Pension Fund Regulatory and Development Authority (PFRDA), Insolvency and Bankruptcy Board of India (IBBI) are also part of the council. Additionally, the chairperson can invite anyone they deem necessary to the meetings. FSDC constantly monitors the macro-prudential supervision of the economy: keeps a check on the functioning of large financial conglomerates; addresses inter-regulatory coordination and financial sector development issues; and focuses on financial literacy and financial inclusion.
FSDC progress over the past few years
Over the past few years, the council has consulted on suggestions on the union budget and has deliberated on providing supportive measures to the financial sector to achieve faster real economic growth. It reviews the financial situation in the country and accordingly makes recommendations. It has a sub-committee, chaired by the RBI governor, which meets more frequently than the council. The sub-committee collectively assesses the risks posed to the sector and collates them in the Financial Stability Report (FSR), published by the Reserve Bank of India. Further, it has multiple working groups whose workings expand around financial literacy, crises, regulation and fiscal monitoring.
This council is also involved in international coordination with financial interfaces like the Financial Action Task Force (FATF) and the Financial Stability Board (FSB). For the uninitiated, the idea to set up such a body was first introduced by the Raghuram Rajan committee in 2008 but was implemented in 2010 by former Finance Minister, Pranab Mukherjee, who also chaired the first meeting of the FSDC in December that year.