The country should focus more on ‘anticipating crisis’ rather than ‘responding to a crisis’, Finance Minister P Chidambaram said here on Monday.
Speaking at a national seminar on Indian Financial Code recommended by the Financial Sector Legislative Reforms Commission, Chidambaram said that India responds to crisis rather than anticipating them and in a changing world, financial economic policy has to catch up with the needs of future India that we are aspiring to build.
He also said that the shifting of regulation of the commodities futures market to the Ministry of Finance was a response to a crisis and as it did not anticipate the crisis.
The minister also vowed to eliminate unregulated players in the financial market. He said that multiplicity of institutions and regulators that had come up from time to time to meet newly perceived needs, had potentially created regulatory overlaps, gaps and ambiguity due to lack of role clarity.
This, he said, created inefficiencies in addressing critical emerging issues in an increasingly dynamic, complex and interconnected financial world. “The present arrangements have a number of gap areas, where no regulators are unambiguously in-charge, such as issue of regulatory oversight over diverse Ponzi schemes that we have discovered recently. These are cleverly designed to be out of the purview of regulatory agencies,” he said.
“The financial sector generates undefined areas which provide opportunities for the unregulated players in the market. They operate in the twilight zone endangering the discipline of market creating instability. This affects large consumers and reduces confidence in the system,” he said.
Hailing the report of the Financial Sector Legislative Reforms Commission, the minister said the endeavour is to eliminate the unregulated space and the Indian government was focused on protecting the interests of the financial consumers. “A recent attempt in this direction is the ordinance dated July 18, 2013, re-promulgated on September 16, 2013, which considers any raising of resources by whatever means, if no regulated otherwise, as collective investment scheme,” he said.
In its report, the FSLRC had recommended that financial sector regulators such as Securities and Exchange Board of India (SEBI) (for capital market) and Insurance and Regulatory Development Authority (IRDA) (for insurance) be merged into a Unified Financial Agency (UFA) and the role of the Reserve Bank of India should be restricted to regulating banks and managing the country’s monetary policy.
Pointing to the challenges ahead in this regard, Chidambaram said: “I am not sure how much this law will go through in the same fashion when it finally goes to Parliament ...(but it) will be a major milestone in Indian financial sector reforms”.