A handbook for regulators and cracks in the wall

The Financial Sector Legislative Reforms Commission (FSLRC) has written the grid of a brand new regulatory structure. With 16 Acts of Parliament to be repealed and 50 Acts to be amended for the Indian Financial Code (IFC) to become a reality, the political journey ahead is complicated. The ministry of finance took a pragmatic view and used the meeting ground of regulators, the Financial Stability and Development Council (FSDC), to build consensus about implementing those parts of the IFC that need no legislative changes. The eighth FSDC meeting, held on 24 October 2013, approved 12 areas that each regulator will work on to make them IFC-complaint. These include consumer protection, framing regulations, notices, transparency in board meetings, reporting, approvals, investigation, adjudication, imposition of penalties and capacity building. They agreed that these should be implemented quickly. Two months later, on 26 December 2013, the ministry uploaded a handbook that gives guidance to the regulators to help implement these steps with the idea that there should be regulatory harmony so that market failures that occur due to regulatory blind spots, regulatory arbitrage and turf wars are reduced.

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Hurdles to new financial code

Expense Account, Mint

I must admit I’m a bit surprised by the kind of debate that the Financial Sector Legislative Reforms Commission (FSLRC) Report (http://finmin.nic.in/fslrc/fslrc_report_vol1.pdf) has generated. The 439-page report has made recommendations to re-haul the Indian financial system to facilitate the journey of the $2 trillion Indian economy to becoming a $15 trillion one by 2026. The Justice Srikrishna Commission did not stop at recommendations, but went ahead and drafted law that that will make this happen. The draft Indian Financial Code (http://finmin.nic.in/fslrc/fslrc_report_vol2.pdf) has in it the blueprint of a principles-based, goals-oriented, democratic set of rules that, for the first time, have given consumers their place in the sun. Some of the debate trashes the entire report and calls for a total rethink. I believe this is based on either reading just the dissent notes or a very thin reading of the executive summary. But the conclusions these views come to are quite sweeping. While there may be merit in the argument against some parts of the report or draft law, it does seem a bit odd that instead of trying to correct what is wrong, some would rather throw it all out.

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Jairam’s ‘maneaters’ need a strong consumer movement

Expense Account, Mint

Growing up in the 70s and 80s in urban middle India was to know what shortages are. The state strangled enterprise and everything from a scooter to a phone to butter, milk and grain was scarce. The civics and history textbooks stank of double standards as they spoke about an India that was far away from the life of the person for whom that English textbook was written. I call it the Manoj (Bharat) Kumar movies phase of India—we were losers but were brainwashed into looking back at a glorious past. A past that was distant enough in its historical dividend not to matter to people struggling to find an average “service class” livelihood. Of course, “business class” then meant not an airline seat but something totally different.

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Buyer beware to seller be responsible

Expense Account, Mint

October has begun well. On the first day we had the roadmap for financial sector legislative reform unveiled in the form of an approach paper, and significant life insurance reforms. While the insurance reform is about removing wrinkles in the world as it exists, the first one aims to redefine the world. At least the financial world in India. If finance (finance is more than just money, finance is what money does) is the brain of the economy, then a financial system translates investment into gross domestic product growth. The paper says that there is strong academic literature to show that countries with a better financial system obtain better economic growth. If this is true, then India is attempting to run with both feet tied—some of our financial sector regulation would outdate good vintage wine and the regulatory arbitrage results in overt and covert turf wars that will make kabaddi look like a sophisticated game.

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