Is New Delhi’s North Block on an ego trip? Nothing else explains the determination with which its officials seem to be pushing a bad idea even after substantial doubts have been raised. This newspaper has already raised questions about the manner of issuance and the intent behind the ordinance issued by the President of India on June 18, 2010 on jurisdictional issues pertaining to unit-linked insurance plans (BS, 29 June 2010). In dealing with questions of regulatory overlap, the Union finance ministry has given itself new powers over financial sector regulators, including the nation’s central bank, the Reserve Bank of India (RBI). The wise thing to do for the government would be to listen to learned comments and the genuine doubts expressed, send the draft Bill to the Parliamentary Standing Committee for Finance and suitably address the core issue of central bank authority and autonomy. Union Finance Minister Pranab Mukherjee has given verbal assurance that nothing will be done by the government to diminish the status of the central bank. This is well taken. But this assurance would have meaning if the government offers to take a second look at the text of the ordinance.
There are two substantial issues at stake. First, the idea of the finance minister chairing a joint committee that has, as its members, secretaries from the Union finance ministry and the chairmen of the Insurance Regulatory and Development Authority (Irda), the Securities and Exchange Board of India (Sebi), and the Pension Fund Regulatory Development Authority (PFRDA), along with the RBI governor, immediately alters the status of the central bank governor. This committee is to be “charged with the responsibility of sorting out all issues of jurisdiction regarding hybrid products or composite instruments having a component of money market investment or securities market instrument or a component of insurance or any other instrument” presently handled by RBI, Irda, Sebi or PFRDA”. In effect, it would mean the finance ministry would be adjudicating on these issues. This is a bad idea. (More so since all the present heads of these institutions are former members of the Indian Administrative Service!) The best way out would be to make the RBI governor the chairman of this joint committee. This would restore to the governor the status of primus inter pares, while allowing the finance ministry to have two senior secretaries conveying its views which would be heard with respect by all concerned.
Second, the idea that inter-regulatory institution coordination can be done through governmental fiat is a wrong one. Differences between regulators are bound to crop up, jurisdictional issues are bound to arise. The best way to deal with them would be to clarify jurisdictions better, as was done in the case of unit-linked insurance plans, and leave it to the wisdom and experience of regulators to iron out their differences, under the benign chairmanship of the RBI governor and the intent gaze of finance ministry representatives. Bringing the finance minister into this not only politicises the process, but will end all discussion. The finance minister has, after all, the last word on any issue. But to so openly flaunt ministerial authority over institutional autonomy is fraught with negative consequences for economic governance.
