The author of the Financial Sector Legislative Reforms Commission (FSLRC) Justice Srikrishna has defended the commission's recommendations, saying, financial and monetary policy decisions should be the prerogative of the government.
The FSLRC chief defended the commission's suggestions for a complete overhaul of the financial sector regulation by merging oversight functions of market, commodity, insurance and pension regulators, saying, everybody needed to be accountable in a democracy.
Unlike the central banks of most other countries, monetary policy in India is set solely by the RBI governor. While there is a technical committee to advise the governor, the governor often decides for himself, Justice Srikrishna, a former Supreme Court judge, pointed out.
Justice Srikrishna also highlighted the lacune in the current system pointing out the regulatoy gaps that allowed the so-called Ponzi schemes like the Saradha group unearthed in the recent past.
"We have seen how regulatory gaps have enabled sharks to swim through them. The obvious reason is, if you say that this regulator has this domain jurisdiction, the regulator refuses to look at anything else. In between this, somebody takes advantage and runs away with public money," he added.
Also, according to him, while even the President and the prime minister of the country are answerable to the people, regulators, including the RBI, are not accountable in today's set-up. "Which regulator tells us what is the reason behind which he is doing something?" he asked.
The FSLRC report, submitted in March this year, called for a total overhaul of the existing financial system by merging the oversight functions of the market, commodity, insurance and pension regulators.
Justice Srikrishna, however, said implementation of the committee's recommendations, especially the hiring of manpower for a unified regulator, will be a big challenge.
The setting up of a monetary policy committee as recommended by the FSLRC would rid the Reserve Bank of India, its sole authority to set monetary policy.
The FSLRC had recommended the setting up of a 7-member monetary policy committee that would decide on the monetary course of action.
Under the draft bill that would set financial sector reforms rolling, the 7-member monetary policy committee would be headed by the RBI governor and include two members appointed by the government in consultation with the bank along with three direct appointees of the government.
While the governor will have the power to veto the panel decision, he, however, will have to give the reasons in writing.
With there government representatives and two government appointees on one side and RBI and one of his deputies on the other side, the balance of authority will tilt towards the government – the RBI governor remaining a figure head.
RBI governor D Subbarao, however, expressed reservations on the recommendations of the FSLRC that suggests giving a statutory body status to the Financial Stability and Development Council (FSDC), a board to be headed by the finance minister.