As pre-Budget reporting floods the papers, the line between news and wishful thinking begins to blur. This happens year after year but one ignores these currents at one’s peril. A particular one that has interested me is about the financial sector regulators. While Business Standard had listed ‘unified regulator’ and the ‘Indian financial code’ in the market wish list for 2015, recent developments suggest some action on this in the Budget itself.
A first indication was the three-month extension given to Forward Markets Commission (FMC) chief Ramesh Abhishek, in mid-January. Though some names for a new chief with a longer mandate were floating around, the government announced the unusual third three-month extension to Abhishek five days after his earlier extension was over.
This move, in a way, begins to make sense if one reads it with two pieces that appeared on Monday. One was an interview by my colleagues in Business Standard of economist Ajay Shah (Read here). The second being the Business Line lead story on a coming FMC merger with the Securities and Exchange Board of India (Sebi) (Read here).
Shah, a member of the Financial Sector Legislative Reforms Commission (FSLRC), which conceived both the game-changing proposals, suggested there was no disconnect caused by the change of government. However, the Business Line story talked about a flurry of meetings that have happened already, to get going on the merger. So, from the ministry’s perspective, it is better to have a known devil at the helm of things while getting into this historic transition.
Shah, in his interview, talked about how incumbent agencies generally oppose reforms and how one should not be the “judge of his own cause”. While these comments were made in the context of the central bank, my thoughts went to a meeting in Marine Lines (Mumbai) with Abhishek’s predecessor, B C Khatua, six years earlier. I remember him fiercely defending his turf and going on to suggest how FMC, being the older regulator, governing an economically far more significant market, should be made the super-regulator and others merged with it (www.livemint.com/Home-Page/7k6bRMEZ6IAyP6CbT2HCnL/FMC-chief-slams-proposal-on-merger-with-Sebi.html).
A lot of high tides have hit Marine Lines since. With FMC coming under finance ministry control following the National Spot Exchange scam and with a chief on extension at the helm, resistance for the move is likely to be minimal.
This virtual walkover would be a significant step towards the super-regulator goal. Yet, the larger challenge would be to bell the big cat of Mint Road. Like his predecessor, D Subbarao, who sent a detailed feedback against the super-regulator proposals, Governor Raghuram Rajan has not been a great fan of the FSLRC proposals. He even called some of the ideas “schizophrenic” at a conference in July.
Shah, in his interview, advised people in RBI to check their ‘base desires’ and understand that “India's interests are more important than RBI's interests”.
The razor-sharp Rajan might have an adequate ‘national interest’ repartee on that but might find it tough to defend RBI in at least one area. Though a public critic of crony capitalism, he has not said much on the politically- connected ponzis. Successive RBI chiefs have taken a position that what is not registered with RBI is not regulated by RBI. That position is becoming untenable, as the resulting impunity has spawned numerous copycats, several of these ending as cases in the Supreme Court. Last week, an annoyed bench directed a Central Bureau of Investigation probe into why regulators like Sebi and RBI were turning a ‘blind eye’ on the ponzi menace. Sebi would have numerous instances of recent orders against such entities to show. Does RBI have enough?
