Stiff opposition by the Reserve Bank of India and an uninterested approach by the finance ministry over financial sector reforms recommended by the Financial Sector Legislative Reforms Committee has prompted President Pranab Mukherjee to make an unusual intervention and take up the issue with Prime Minister Narendra Modi.
The panel, chaired by justice (retd) BN Srikrishna, which submitted its report on March 22, 2013, suggested dramatic changes to the financial sector’s regulatory architecture. These include putting in place an Indian Financial Code that will replace the bulk of existing laws and creating a single regulator for pension, equity, insurance and commodities markets.
The RBI will continue with its present mandate of deciding the monetary policy and monitoring and supervising banks and payment systems.
In a letter to the finance ministry last month, Nripendra Mishra, the principal secretary in the Prime Minister’s Office, said Mukherjee had spoken to the PM about the import of the FSLRC recommendations which will do away with a multitude of laws, usher in consumer protection and create a single agency to manage government debt. Mukherjee is learnt to be cut up that 18 precious months had passed with little or no progress on the implementation front.
The FSLRC was set up by the Congress-led UPA government on March 24, 2011, when Mukherjee was the Union finance minister. The committee took two years to finalise the report and submitted it to P Chidambaram, who returned as finance minister on July 31, 2012, following Mukherjee’s election as the thirteenth President of India. Chidambaram remained the finance minister till the end of this government’s term.
Prime Minister Narendra Modi’s office has now asked the finance ministry to explain the inordinate delay in implementing the recommendations of the committee.
The report, which saw dissent notes on certain aspects by four of the committee members, has come under serious attack from Reserve Bank of India governor Raghuram Rajan. In a June 14 talk this year — within a month of the Modi government taking charge at the Centre — Rajan described the committee’s recommendation on the appropriate size and scope of regulators as “somewhat schizophrenic”. “…the recommendations seem faddish and impressionistic rather than based on deep analysis,” he said, addressing the First State Bank Banking and Economic Conclave in Mumbai. He went on at length about the dangers of excessive legal oversight on regulators.
According to sources, the President feels it has been 18 months of a lost opportunity. They pointed out that Rajan’s observations have not cut much ice with the the BJP-led government. At a very broad level, Prime Minister Modi believes that a multitude of laws is not a good idea, government sources said. He has on more than one occasion said the government would do away with laws that do not serve much purpose in today’s environment, they added.
The finance ministry, which has so far maintained that a view on the report would be taken after consulting all stakeholders, has not offered any strong reaction to Rajan’s intellectual argument either. The sources noted that the PM has taken the President’s observations in right earnest.
Another reason, government sources said, for the President to specifically raise FSLRC recommendations with Modi is his consternation about the delay, particularly by his successor in North Block. Chidambaram and Mukherjee did not particularly enjoy a very good relationship within the Congress party.