On Saturday, Finance Minister Arun Jaitley chaired a meeting of the Financial Stability and Development Council, the first since the new government took office. Mr Jaitley is, of course, in the process of writing the Budget for the current financial year in which he will have to address the many concerns as well as the high expectations born of Narendra Modi's emphatic election victory. It is very important that the new government should move swiftly to implement reform. This is largely because the macroeconomic numbers are still so shaky - in particular, the fiscal deficit is not fully under control - that investors' patience will not last forever. They will not sit quietly by while the new government takes an inordinately long time to consider all the alternatives before it. They will expect action.
It is worrying, therefore, that the new government does not seem to be acting quickly on the existing action plans produced by independent bodies in the past. Mr Jaitley was specifically asked his opinion on the implementation of the recommendations of a committee led by P J Nayak that investigated public sector banks. The committee's report suggested that public sector banks be professionalised - in particular by reducing government control and shifting much of its shareholding to an independent holding company. This is a sensible first step. However, on being asked about the Nayak report, Mr Jaitley said: "You will have to wait for our application of mind on these subjects." While the Nayak Committee's recommendations should be reviewed, this process cannot take a long time to complete. The road map exists; the new government should start implementing it after a quick review. It should not pretend that it has so fundamentally different an approach that it needs to reinvent the wheel.
Another such example is that of the Financial Sector Legislative Reforms Commission, or FSLRC. The commission's report even separates necessary reforms into short-, medium- and long-term actions. Many of the short-term actions are administrative changes. There should be no hesitation in implementing these changes. Already the very sensible and necessary proposal for a unified financial regulator is being stalled by vested interests in various regulatory bodies. They should not be allowed to prevail - in an increasingly complex financial sector, regulatory clarity is essential. The Sahara group's fall reveals the perils of persisting with a system that allows regulatory shopping.
Mr Jaitley has made all the right noises about fiscal stability and macroeconomic prudence. However, the only solid answer to short-term concerns is to show that long-term reform is in place. This is where the previous government failed. The new one should not repeat its errors. One such grave error would be to sit back and think when action is required. Reports like those from the Nayak Committee and the FSLRC are hardly tainted by association with the previous government. Rather than reconsideration, they need implementation. After all, is that not what this government was elected to do?
