RBI objects to joint committee in ordinance on ULIPs
The Finance Minister Pranab Mukherjee today said that the joint committee envisaged by the Unit Linked Insurance Plan or ULIP ordinance won’t hurt the independence of regulators. He said the government will have a minority of three members in the committee and the four regulators will have a majority.
Mukherjee said, “The ordinance raises clearly the point that if there be a conflict between two regulators in respect of the hybrid jurisdiction, then this joint mechanism will interfere. A joint mechanism contains three members from the government, including the finance minister, and four members are the four regulators. Therefore the intention is quite clear. We are not going to interfere with the autonomy of regulators in their respective areas.”
The Reserve Bank of India or RBI, however, has protested against this joint committee saying it will prefer the current mechanism for dispute resolution which is the HLCC chaired by the RBI governor, reports CNBC-TV18′s Latha Venkatesh.
D Subbarao, Governor, RBI said, “The RBI has certain reservations and concerns, which we had expressed in a letter. The finance minister was kind enough to invite me for a discussion. However, the final decision is left to him. I reiterated our concerns tothe finance minister and he heard them kindly and he will take a final view because passing a law is the prerogative of the government.”
The RBI’s discomfort is with the format where a regulator is answerable to an executive body like the finance ministry. There are myriads of instances where they have to give up before a parliamentary committee. The RBI feels it could harm its regulatory independence. Globally, central bankers don’t defend products to ministers and does it only to parliament.
Also, the assumption that the finance minister comes with that there are only three government nominees including the FM and four regulators and hence we are in a majority, does not always work.
Some of the issues in the past where the RBI has had a problem include participatory notes and real estate mutual funds, which are not necessarily government versus all other regulators. Very often the RBI has tried to dodge an issue by either delay or by trying to create a public debate on an issue, which postpones the chance of a debate on issues with national importance.
The central bank prefers to be on the chair of the committee because it will give them the ability to monitor the progress of any issue.
S Narayan, Former Finance Secretary said, “During the budget the finance minister announced that there is going to be a joint committee, a supervisory regulatory committee. There is a lot of media criticism and argument about whether it is necessary or not.The finance secretary came out and said that this is only going to be a kind of talking shop or a kind of clearing house. We have gone back to a situation where you have a legislative body that can give directions to the regulator.”
Shankar Acharya, Former Advisor to the Finance Minister, “It is vitally important to preserve whatever is in the jury independence of the RBI and that is all absolute as well and perhaps more importantly, what is the de facto independence of the RBI on a wide range of matters. It would be important to avoid steps whether in the form of ordinance, which in some sense are seen to ride roughshod over this independence.”
Source:- Moneycontrol
