After a long lull, I was delightfully surprised to see the recommendations of the Financial Sector Legislative Reforms Commission report being debated. For a reform that’s potentially a true game-changer in the financial sector landscape, this report has unfortunately not received the attention — favourable or critical — it deserves. As this blog has tracked earlier, this report with a draft law embedded in it, has implications that go beyond finance and help serve the real economy. Further, this is the first piece of potential legislation that keeps consumers at the heart of the law.
The report suggests the end of regulatory turfs that allow scamsters to hide between the gaps. “The diverse Ponzi schemes have been so cleverly designed that they do not fall under the purview of any regulator,” finance minister P Chidambaram said. Changing this is a long-haul and involves discussions that would finally lead to a law. “But passing laws has become difficult due to legitimisation of obstruction as a Parliamentary tactic.”
The problem: while Chidambaram has put his weight behind this report, I didn’t see voices from other parties. Given that their support in amending more than 60 existing laws into a single Indian Financial Code (IFC) is critical, the seminar missed an opportunity to broaden the debate. A participant from the BJP, say former finance minister Yashwant Sinha, would have enriched the discussion.
Still, the scale of the debate — from Chidambaram and principal secretary of Karnataka KP Krishnan to National Stock Exchange vice chairman Ravi Narain and economist Ajay Shah, policymakers, policy players and policy analysts — was impressive. Organised by The Institute of Company Secretaries of India (ICSI), the day-long seminar touched upon important themes, from markets and macro finance to financial firms and regulatory regimes.
While the IFC is a humungous piece of legislation that involves 60-plus amendments and more than 16 repeals, speaker after speaker warned of not getting embroiled in a section-by-section or even sentence-by-sentence breakdown of the Code. “It is important not to lose time in petty quibbles,” NSE’s Narain said. “We need to build consensus on key principles of the report.” If you look at the report and find a point you disagree with, suggested Shah, “think deeper and you’ll probably see its implication when you see the law in its entirety.”
The IFC, Shah said, asks five questions for the regulation-making process. “One, what is the market failure and can you demonstrate it? Two, is the market failure consistent with consumer protection? Three, what is the intervention you propose? Four, can you elaborate how that intervention will work? And five, can you enumerate the costs and benefits of this intervention and prove that benefits outweigh costs?”
With a report so broad and implications that look into a future that’s as far away as 2050, the question being asked is: are we being too ambitious? “The obvious answer is yes,” said Krishnan. “I also do not see any reason to be apologetic about India being ambitious as long as the purpose is laudable and the means constitutional. If the accusation is that we are being too ambitious, I happily plead guilty.”
The IFC is an important piece of legislation. In the next four decades, India’s GDP is expected to be where the US GDP is today. The financial system that India needs to get there resides in the IFC. All players in the financial sectors — from political parties, the government and regulators to companies, intermediaries and consumers — need to engage with it, study it, critique it. If you still haven’t, get involved now.