Experts against 'super regulator' concept in India

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RBI Governor D Subbarao recently reopened the debate on a unified financial services regulator or super regulator for India. He came out strongly against unifying financial regulation under Securities and Exchange Board of India (SEBI).

The Governor may be against it but the Finance Ministry, word has it, is set to be pushing the idea quite strongly. The UK does operate under such a system with the Financial Services Authority (FSA) regulating all financial services. Can such a system work here in India and what form can it take? Does there need to be any adaptation?

Discussing this, S Narayan, Former Finance Secretary, said a regulator unless it was the government itself which would be managing the four arms (secondary markets, financial markets, monetary policy, fiscal policy) simultaneously would be a very difficult to conceive. It would be dangerous to have a 'Super Regulator' under the Finance Ministry, he added.

Seconding Narayan, Meghnad Desai, Emeritus Professor-Economics, LSE said he didn't think the FSA worked as well as it was expected to work. He would not recommend the FSA model in India."I am now against the idea of a single over arching regulator. Let there be multiple regulators and then the idea is that they would not all make the mistakes simultaneously of missing the crisis," he added.
Here is a verbatim transcript of an exclusive interview with S Narayan and Meghnad Desai on CNBC-TV18. Also watch the accompanying video.
Q: What do you make of the reemergence of this debate around the need for a super regulator in India, at least sources tell us that the Finance Ministry may be looking quite keenly at the idea, various pervious committees have also recommended it - what do you make of it?

Narayan: I think the concern of the Reserve Bank Governor stems from the fact that at the moment the coordination between the different regulators is done by a high level coordinating committee which is headed by the RBI Governor and where the Chief of SEBI, the Finance Secretary and the Chief of IRDA our members and this arrangement of the high level coordination committee has been working extremely successfully for the last 8-10 years. We need to understand what exactly is meant by a super regulator and what exactly it is expected to do. As we can see SEBI functions totally in the equity and the secondary markets, the IRDA concentrates on the financial markets whereas the RBI is responsible for monetary policy and it is fiscal policy that's the role of the government.

So, a regulator unless it is the government itself which is managing all these four arms simultaneously, a regulator which can do this four different tasks would be a very difficult one to conceive of. Finally, the conception of the Finance Ministry that this regulator should be in the Finance Ministry and to be headed by the Finance Minister, to my mind is a very dangerous concept because in a way we are moving the area of regulation from professionalism into politics.
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