During Budget Speech our Finance Minister announced that there will be autonomous body called Financial Stability and Development Council (FSDC). He also further stated that - This body will be responsible for financial stability and also will deal issues and disputes pertaining between financial regulators. It is believed that this will be headed by the Finance Minister (FM) himself, which is expected to be an advisory body. He did clarify that FSDC will not act in any manner prejudicial to the autonomy of the current set of regulators.
Regarding this recently many articles where published about questioning on this FSDC. The article which is published in the website of gfilesindia written by GS Sood gives a clear structure of the FSDC. It stated that “It will be multi-layered. The council’s members will include the heads of financial regulatory organizations such as RBI, SEBI, IRDA, and PFRDA. In addition, the Finance Secretary and chief economic adviser of the Ministry of Finance will also be members of this council.”
It further stated that “The council will have two committees working under it, namely the Financial Sector Regulatory Co-ordination Committee (FSRCC) and Financial Sector Reforms and Stability Committee (FSRSC). The composition of FSRCC, proposed to be headed by the RBI governor, will be similar to that of the High-Level Committee on Capital Markets. That, in effect, means that all the regulators will be its members. The second committee, FSRSC, will be headed by the Finance Secretary and all the regulators will be its members other than the RBI Governor. The Deputy Governor of the RBI will be a member. The Finance Minister has been advised to establish a permanent secretariat for FSDC.”
He further added that “FSDC seems to have become a power game between the bureaucrats in the Ministry and those in the regulatory agencies. The bureaucrats in the ministry would love to shift the Centre of gravity of power away from the regulators to the Ministry. Despite all FM’s good intentions, FSDC would end up becoming a draconian super boss, given the games bureaucrats play especially when the Minister is as busy and burdened as is the FM.” (For full article: http://gfilesindia.com/title.aspx?title_id=111).
On Thursday (08-07-2010) many would have read in news paper that “RBI moves Finmin to secure autonomy”. The news states (excerpt) that “The Reserve Bank of India (RBI) has urged Finance Minister Pranab Mukherjee to allow the Securities and Insurance Laws (Amendment and Validation) Ordinance 2010 to lapse, since it could affect the autonomy of all regulators, including the central bank. The ordinance, promulgated last month, will automatically lapse if the government does not bring a bill to this effect in the monsoon session of parliament. In such a case, the existing High Level Coordination Committee (HLCC) on Financial Markets, headed by the RBI governor, will remain the nodal authority for coordination among regulators.”
There are few questions which arises on the formation of FSDC, they are 1) Can FSDC will be able to avert scams like Harshad Mehta’s & Satyam? 2. Who will head FSDC, the Minister or a bureaucrat or Governor of RBI? 3) If FSDC becomes the super boss of financial markets, what will be the role of Financial Regulatory Bodies (esp. RBI)? & the most important question is 4) Do India really needs FSDC?
There are different views among Economist and Financial Analyst regarding the formation of FSDC. An important thing, we should remember is, our Central Bank (RBI) have a world reputation for its Monetary Policy and Financial Stability. Now the question is whether the RBI will remain the Apex and Autonomous Body for the Financial Markets?
