The book under review is authored by S.S. Tarapore, the Bhishma Pitamah of the Indian economic scene. He acquired fame for his contributions on different aspects of our economy. With impeccable credentials, he distinguished himself as Deputy Governor of the RBI. He had a long stint in the IMF and headed several important committees, especially the two Capital Account Convertibility Committees. He was a member of the Narasimham Committee.
This book is a critical analysis of the “Financial Sector Legislative Reforms Commission Report”. Tarapore vehemently criticises the recommendations of the commission which will result in emasculating the present regulatory framework. He is firmly against the reduction in the role of the RBI Governor and the paramount role of the Central bank.Tarapore tackles the dangers flowing from the thoughtless implementation of the FSLRC report. The committee, appointed in 2011, decided to abrogate all existing legislation relating to the financial sector, including the State Bank of India Act and the Bank Nationalisation Acts and replace them with a totally new framework. The commission was tilted against the RBI. Its report failed to ensure that the vital aspects of the existing laws were retained.
The author rightly argues that it will be necessary to carefully analyse every sentence of the existing financial laws together with every sentence of the projected Indian Financial Code before Parliament agrees to any large scale repealing of the existing laws. Tarapore spells out that centralisation of regulatory powers with government would run counter to its avowed aim of “Minimum Government with Maximum Governance”. The latest Finance Bill (2015) had clauses restraining the power of RBI and setting up of an independent Public Debt Management Agency. The Finance Minister, however, deleted such clauses from the Finance Bill.
The FSLRC report should be referred to a Standing Committee on Finance, which should study in detail the recommendations. After their scrutiny only specific financial alterations could be considered by Parliament. The current multiple regulators have developed some experience and we ought to depend on them rather than experimenting with an untested Unified Financial Authority.
Tarapore debunks the allegation that RBI is reluctant to give up operating the debt management of the government. The author warmly welcomes the historic agreement on the Monetary Policy framework and hopes that the MPC will become operational. He is in favour of the Urjit Patel committee recommendation, according to which there would be three executive members and two external members to be appointed by RBI and there would be no veto for the Governor. This would ensure that the RBI can be made fully accountable for its actions.
The commission has failed to study the subject of “Financial Inclusion” and given it short shrift, providing no safeguard against cartelisation. It recommends merging Bank Deposits Insurance Funds with the funds required for operating the Resolution Corporation. By this, the former funds would be used to bail out non-bank financial companies. Deposit Insurance should be kept separate from the Resolution Corporation.
In July 2015, the Government released a revised Indian Financial Code which attracted strong criticism from seasoned commentators as it suffers from serious lapses. Tarapore is convinced that the leitmotif of the report, the IFC Code and the Revised Code, is based on “…a morass of anger, confusion and hatred of the Central Bank of the country.” This is a stirring call for Parliament to give careful consideration to the recommendations of the commission and not allow itself to be bamboozled into making fundamental changes in the present financial legislative structure.
The book is compulsory reading for bankers, economists, planners and laymen, too.
