Death Of Independent Regulation In The Financial Sector?

Recent statements by the Prime Minister have indicated that he has lost faith in the Independent Regulators in India – He pointed out that problems in Telecom would not have been there except for the fact that the Telecom regulators didn’t do their job.

So from claiming to strengthen the Regulatory institutions and their independence, is our Prime Minister and his government now overseeing the move of the pendulum back to Big Government and Government regulation? The recent case of the legislation introduced and passed with some feeble opposition “Securities and Insurance Laws Amendment Bill” seems to suggest that we are moving back to the days of the powerful bureaucrat and Government regulation.

India was perhaps the only country to escape the trauma of 2008 global economic recession. This lucky escape did not happen by default but due the leadership, vision and demonstration of capability of our independent regulators of financial markets such as RBI and SEBI. India is indebted to Dr.Y.V.Reddy and R.Damodaran who lead these regulators and successfully resisted populist and fashionable trends and bureaucratic pressures that were constantly proposed in the guise of reforms.

The financial markets and financial sectors of our country are today valued at tens of thousands of crores and have shown systematic and solid growth over the past two decades – But more than the size growth, the markets have grown in terms of its transparency, governance and regulation – making it one of the best regulated markets in this part of the world.It is precisely this orderly transformation of our markets into a transparent and well regulated market that we are going to throw into question with this back door intrusion of the political and bureaucratic executive into the realm of independent regulation.

The Bill on Securities and Insurance Laws Amendment sets a very bad precedent. The Bill raises a significant and critical issue about the policy of the Government towards institutions of independent regulators and the entire concept of independent regulation. Regulatory disputes and regulatory adjudication cannot compromise the concept of Independent regulation of the sector or the function, as this bill ends up doing. This Bill brings in a bureaucratic and political oversight into a critical and sensitive area of regulatory dispute adjudication – which is undesirable and retrograde.

Read my article in Businessworld on The Cost of Bad Governance Click to Read

Bringing the bureaucracy into this sensitive area of financial sector regulation not just goes against the Government’s own previously stated objective of strengthening independent regulation but also the creeping influence of the Government is bad news for the future of independent regulation in our country. Any dispute – real or imaginary – must be still settled through an appropriate independent body – with no bureaucratic interference and involvement. If the government is averse to courts resolving this disputes – then the solution should be a independent appellate body – or whatever type or form – but without any compromise on the independence.

The government could have and should have created an Independent Regulatory Disputes Appellate Tribunal, instead of the current structure and signal its commitment to strengthening independent regulation in India – a promise it made to the country, but now seems to have changed its mind!