The two-year extension granted to U K Sinha as the chairman of the Securities and Exchange Board of India, or Sebi, is both significant and rare. Indeed, this is only the second time since its inception in 1988 (Sebi became a statutory body in 1992) that the apex regulatory body for the capital markets has seen an extension of the term of its serving chairman.
None of Sinha's three immediate predecessors - C B Bhave, M Damodaran and G N Bajpai - was given an extension after they completed their three-year terms. D R Mehta, who was given a five-year term to begin with in 1995, was the only other Sebi chairman who was given an extension of two years, making him the longest-serving Sebi chairman so far. Mehta's record is unlikely to be broken since after his departure, all the candidates for Sebi chairmanship have been given a three-year tenure. Sinha can theoretically equal or break Mehta's record since he could still get another extension after two years, but that would be unusual.
Why Bhave, Damodaran and Bajpai did not get an extension after the completion of their initial three-year tenure will, of course, remain a subject of debate for a long time to come. Mandarins in North Block, headquarters of the finance ministry, will offer many reasons for why none of them was given extensions. Some of these reasons are the formation of a new government at the Centre or a change in their equations with the finance minister. Of course, new light will be cast on why their term did not get extended if these individuals choose to break their silence on the matter someday.
Sinha's extension of term is significant for another reason. The decision has been taken and announced just a couple of months before the general elections. If the United Progressive Alliance government had wavered a bit in deciding on this matter in the light of the forthcoming elections, the country's capital market would have had to live without a full-time regulator for at least four to five months. The impact of such a void on the financial sector would have been quite harmful. The forthcoming elections are also perhaps one of the reasons for the government to settle for an extension of Sinha's term, instead of appointing a new regulator. A decision to appoint a new regulator at this time of the year could have become controversial.
The decision to give Sinha a two-year extension also shows how the Union finance ministry has ensured that even as the country prepares for the general elections in the next few months, its key financial regulators are in place to take decisions that may become necessary. Last February, the government named T S Vijayan chairman of the Insurance Regulatory and Development Authority of India, or Irda. Vijayan was earlier chairman of the Life Insurance Corporation. That decision was significant for two reasons. One, this was the first time that an industry player was chosen to head Irda. Two, Vijayan's appointment marked the end of the rule of civil servants at the helm of Irda. Vijayan's immediate predecessor, J Hari Narayan, belonged to the Indian Administrative Services (IAS) and prior to that both N Rangachary and C S Rao, too, were civil servants.
In September last year, the government brought about another change in its financial regulatory structure. It appointed Raghuram G Rajan governor of the Reserve Bank of India (RBI). Rajan, an economist, was till then working with the finance ministry as the chief economic advisor, but his appointment showed that the government was willing to go beyond the IAS fraternity to look for professionals to become financial sector regulators.
The exceptions, too, are there. For instance, Sinha is an IAS officer and the government has given him an extension, perpetuating the IAS rule over Sebi for a couple of more years. Of the eight Sebi chairmen so far, five have belonged to the IAS.
Similarly, Yogesh Agarwal, a banker, stepped down as the head of the Pension Funds and Regulatory Development Authority, or PFRDA, under controversial circumstances. He was not an IAS officer and yet he had to suddenly leave the regulatory body because of his differences of opinion with the finance ministry. A search committee to appoint a new head for PFRDA is now on the job. It is not clear if PFRDA would remain without a full-time chairman for some more months or an early decision would be taken.
There is yet another vacancy that may remain unfilled for the next few months. The finance ministry has been functioning without a chief economic advisor since September 2013 after Rajan joined RBI as governor. The government did try to get some economists from the private sector to fill the vacancy but it now seems to have given up that exercise. The new government that is elected in May 2014 may well have to take that decision. But what should give relief to the financial markets is that before the country goes into election mode, the government has put in place a full-time regulator to take charge of all decision-making in each of the key areas - the capital markets, banks and the insurance industry.
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