The submission of the Srikrishna panel report to the government on proposals for a unified financial regulatory body will bring regulators like the Securities and Exchange Board of India, the insurance regulator IRDA, the pension fund regulator etc closer to a unified structure. It ostensibly means better coordination between various regulators who have in recent times been treading on each other’s toes, a state of affairs not good for financial regulation. Various institutions have been selling the same products, like insurance and pension funds, and since each product has its own regulations and regulator, there were questions of who would have the final word.
A unified regulator is an idea that has been afloat from 2008, when the Raghuram Rajan Committee on Financial Reforms suggested a financial sector oversight agency. Since then one has seen several spats between Sebi and RBI over regulating collective investment schemes, and later another spat between Sebi and IRDA on jurisdiction over unit-linked insurance plans. It was settled only after the then finance minister gave his decision. Two years ago, the government in the Budget had also proposed a Financial Stability and Development Council.
The proof of the pudding, as they say, is in the eating, and one would know the efficacy of the Srikrishna panel recommendations only after they are implemented. One hopes that the road map suggested is a purely Indian one within an Indian environment because, if it has been borrowed from the West, it would be problematic as the West has seen total failure in oversight of its financial sector. This failure continues even as the West has reportedly put in place regulations following the financial collapse of Lehman Brothers. Financial scams continue till date.
Of course, the final formation of a unified regulator is expected to take some years, as does every other reform process in India, whether it is the Direct Taxes Code, the Companies Bill or the Goods and Services Tax. There will probably be several committees formed to go into the Srikrishna panel’s hefty report.
Till then it is pertinent to point out that the idea of taking the regulation of the debt market away from the RBI seems a bad idea. The job of the monetary authority is to control inflation, and, unless it has oversight of the borrowings of the government, it would defeat the purpose of its role. It presumes a government that is very conscious of financial discipline, which has not been the case so far.