On September 29, as Narendra Modi was ending his United States trip and Finance Minister Arun Jaitley lay recovering in isolation at the All India Institute of Medical Sciences, the ministry of finance issued a press release. The second paragraph of a two-paragraph release signed by the director of the department of economic affairs said: "As recommended by the FSLRC, the government has set up Task Forces to lay the roadmap for the up-gradation of existing agencies and establishment of new agencies namely the Financial Sector Appellate Tribunal (FSAT), Resolution Corporation, Public Debt Management Agency (PDMA), Financial Data Management Centre (FDMC)."
The report of the Financial Sector Legislative Reforms Commission, or the FSLRC, suggested in March 2013 that to modernise the regulation of the financial sector we need to set up, or modify, seven institutions:
1. The Reserve Bank of India (RBI) needs a vastly modified role and functions.
2. Merge the regulators across capital markets (the Securities and Exchange Board of India, or Sebi), commodities (Forward Markets Commission), pension (Pension Fund Regulatory and Development Authority) and insurance (Insurance Regulatory and Development Authority) into a new Unified Financial Regulatory Agency (UFRA).
3. Create a new Financial Redressal Agency (FRA) to hear complaints of all kinds of financial consumers.
4. Financial Sector Appellate Tribunal (FSAT) to hear the appeals against the orders of UFRA.
5. The Deposit Insurance and Credit Guarantee Corporation of India (DICGC) to be subsumed into the Resolution Corporation.
6. A new Public Debt Management Office.
7. Modify the Financial Stability and Development Council with different functions and a statutory framework.
The new institutions would offer comfortable sinecures for the ever-longer roster of judges, retired officers of the Indian Administrative Service and a smattering of senior bankers.
As is known, the FSLRC's recommendations met with strong opposition from all financial regulators. RBI Governor Raghuram Rajan was the most outspoken of the lot. In mid-June this year, he labelled the recommendations "somewhat schizophrenic".
He remarked: "On the one hand, it emphasises synergies in bringing together some regulators into one entity. But in the process it suggests breaking up other regulators, with attendant loss of synergies. There is no discussion of the empirical magnitude of the synergies gained or synergies lost, which makes the recommendations seem faddish and impressionistic rather than based on deep analysis."
Such strong words against the FSLRC's ideas have not been able to slow down their march even when the prime minister was out of the country and the finance minister was out of action. Indeed it is clear that there are strong forces at work in the new government pushing the FSLRC's recommendations.
Mr Modi's six stated priorities are Digital India, Clean India, Clean Ganga, Girl Child Education, Skill Development and Green India. Overhauling financial-sector laws has never been mentioned as a priority for the government. If anything ought to be a priority, it is fixing the inefficiency and corruption at public-sector banks, starting with the appointment of capable chairmen to the six headless ones. We have not heard anything on this.
Those who are quietly pushing the FSLRC's ideas are playing it smartly, too. Note that the task forces cover the less controversial aspects of the FSLRC. No task forces have been set up for the most radical ideas, which involve four of the seven new institutions recommended by the FSLRC: a modified RBI, the UFRA, the FRA and a modified FSDC. The task forces are only for the other three and for the Financial Data Management Centre.
What will be the fate of these task forces? First, they have been given a year to complete their reports. This is too long. Secondly, the choice of those heading the task forces and their members precludes fresh and independent thinking. Thirdly, some of the FSLRC recommendations are inter-dependent. Implementing the easier ones will not be possible without tackling the tougher ones.
Take the case of the task force for the FSAT. The commission's original idea was that the FSAT would hear appeals against all the new institutions - the modified RBI, UFRA, decisions of the FRA and some elements of the work of the Resolution Corporation. If the RBI is left untouched and there is no UFRA or even FRA, what appeals will the FSAT be hearing? Those against Sebi orders? But appeals against Sebi orders are already heard by the Securities Appellate Tribunal (SAT).
The FSAT task force will be headed by judge N K Sodhi, a former presiding officer of the SAT. Of the six other members of the FSAT task force, two are lawyers, one is from the Unique Identification Authority of India and one is a joint secretary from the finance ministry. For some strange reason, it will also have the attorney general of Maharashtra as a member.
Note that there are no representatives from different stakeholders. Even Sebi won't have a member. It can nominate only an invitee. Other regulators have no say. Financial companies and intermediaries are not among the seven wise men.
Financial consumers, of course, remain untouchables, as always. Everybody wants their money but does not want to hear what they have to say. As I have mentioned several times on these pages, the redressal process for financial consumers is utterly bleak. The RBI and the IRDA have a weak framework for redress, while Sebi has a stronger framework that shows apathy for consumers, and sympathy for financial companies and intermediaries.
In essence, at least the remit and composition of the FSAT task force is of no use to those who keep the financial sector going - the financial consumer. She continues to remain outside the system, held captive by various vested interests.
The writer is the editor of www.moneylife.in firstname.lastname@example.org