The Union finance ministry has decided to make two important changes to the ordinance issued on June 18, on jurisdictional conflicts between financial market regulators.
First, the governor of the Reserve Bank of India will be designated vice-chairman of the proposed 'joint committee', with the Union finance minister remaining chairman. Second, the finance ministry will by itself not refer any matter to the joint committee or seek to convene it. A meeting of the committee can be convened only if one of the regulators seeks it, and the agenda will also be set by the regulators.
A decision to this effect has been taken after Prime Minister Manmohan Singh stepped in to address the concerns raised, among others, by RBI Governor Duvvuri Subbarao. At least two former central bank governors are also believed to have conveyed their concerns to the government. Suitable changes will be incorporated into the text of the ordinance when the relevant bill is drafted and sent to parliament.
Top government sources told Business Standard that while it was not the intention of government to step on the central bank's toes or cramp its style in any manner, the fact remains that in a parliamentary democracy, it is the government that is answerable to Parliament for decisions taken by regulators, including the central bank.
As a former RBI governor the prime minister is himself acutely conscious of the need to maintain correct protocol on such matters, said sources. Adding, "but autonomy does not mean the government abdicates its responsibility".
Finance Minister Pranab Mukherjee has already assured that it is not the intention of the government to abridge the autonomy or hurt the prestige of the central bank. Naming the RBI governor as vice-chairman will ensure the governor remains primus inter pares or first among peers.
The ordinance, issued on June 18, on 'jurisdictional issues pertaining to unit-linked insurance plans (Ulips)' had stated that the government would constitute a "joint committee" under the chairmanship of the Union finance minister and include, as its members, the Union finance secretary, the secretary, department of financial services in the finance ministry, the RBI governor, and chairmen of Insurance Regulatory Development Authority (Irda), Securities and Exchange Board of India (Sebi) and the Pension Fund Regulatory and Development Authority (PFRDA).
The committee would be charged with the responsibility of sorting out all issues of jurisdiction regarding hybrid products or composite instruments "having a component of money market investment or securities market instrument or a component of insurance or any other instrument presently handled by RBI, Irda, Sebi or PFRDA."
It is also understood that the decision to seek a meeting of the joint committee would have to follow prior attempts by the regulators concerned to amicably resolve any disputes, failing which the matter will first be taken up by the existing High-Level Committee on Financial Markets, chaired by RBI governor. If the high-level committee fails to resolve the matter, only then would the regulators seek a meeting of the joint committee.