The government, along with major financial regulators — the Reserve Bank of India and the Securities and Exchange Board of India (Sebi) — was working on a contingency plan to insulate the economy from the worsening Euro zone crisis, RBI Deputy Governor K C Chakrabarty said on Thursday.
“The contingency measures are there... measures are being worked out. For that, a separate committee is working,” he said here after a meeting of the sub-committee of Financial Stability Development Council (FSDC), chaired by RBI Governor D Subbarao.
FSDC is the high-level body for co-ordination among regulators and is headed by Finance Minister Pranab Mukherjee, while its sub-committee is chaired by the RBI governor.
“We have discussed all global developments, the Euro zone was discussed. If it (deepening of Euro zone crisis) happens, you have to face it,” Chakrabarty said. He said the sub-committee also reviewed the recent global developments, specifically in the Euro zone and the US, and their consequences on the Indian economy. The meeting also discussed the concerns on slowing growth, persistent inflationary pressures, growing fiscal and current account deficits and negative market perceptions.
The Euro zone crisis, in particular, has hit the Indian economy in terms of the rupee losing 20 per cent against US dollar since January and capital outflows from the stock market.
The Indian economy is battling rising inflation and declining growth, which experts feel could lead to a 'stagflation' — a situation marked by persistent high inflation and low growth. Economic growth slowed to a nine-year low of 6.5 per cent in 2011-12, while industrial output grew by 0.1 per cent in April.
The Financial Stability Development Council sub-committee also decided to set up a working group to examine issues involved in framing a proposal for a comprehensive resolution regime in the country for all types of financial institutions. The working group will study proposal for a comprehensive resolution regime in compliance with the Financial Stability Board’s (FSB) Key Attributes of Effective Resolution Regimes for financial institutions, an RBI release said.
“The sub-committee further discussed the extant gaps in the regulatory framework for Collective Investment Schemes and the need for the state governments to take the lead in plugging these gaps,” it said.
The meeting also resolved to take forward the work on setting up a regulatory framework for investment advisory services. The meeting was attended by the Securities and Exchange Board of India Chairman, U K Sinha; the Insurance Regulatory and Development Authority Chairman, J Harinarayan; and RBI Deputy Governors Subir Gokarn and Anand Sinha, among others.
“The sub-committee deliberated on and approved the National Strategy for Financial Literacy,” the release added.
