Mr.
Deputy-Speaker, Sir, I would like to take you back to 2008 when the arbitrage,
derivatives and leverage-driven economic meltdown completely devastated the
global economic order. You had banks and financial institutions around the
world which went under. You had banks which had established global reputations and
they had to shut shop overnight. Here, in India, over a period of 18 years you
built such a sound regulatory system that not a single Indian financial
institution collapsed; not a single Indian bank went under, whether it was in
the private sector or in the public sector. This was at a point in time when,
for the first time around the world, the economy contracted by 1.3 per cent.
After the Second World War, it was the first such occasion when the global
economy ever contracted; when 62 million people in140 Asia alone went below the poverty line
as a result of the economic meltdown. India, in terms of its regulation,160 stood out as the beacon of something
which needs to be emulated even by the developed economies of the world. Now,
allow me to come to the genesis of this Bill and demystify the legalese which
surrounds it. The Bill has been explained very succinctly by our hon. Finance
Minister. As the Finance Minister very rightly pointed out, they are for
regulators in the financial sector. You have the Securities and Exchange Board
of India, which looks at capital market; you have the Insurance Regulatory and
Development Authority of India, which looks at the insurance sector; you have
the Pension Fund Regulatory and Development Authority, which looks at the
development of pension funds; and you have the Reserve Bank of280 India, which looks at the banking sector
as a whole.
The
hon. Member had actually raised a very relevant question with regard to what
should be the role of a Central Bank in a liberalised economy. I would just
like320 to take my hon.
colleague back to a speech, which the Finance Minister had delivered after he
presented his first Budget to the Board of Governors of the Reserve Bank of
India; and he said that there is a need to reform the function of the Central
Bank. Since that is not the subject of the debate today, I would not delve deeper
into it. Over the last 18 years, the complexity of financial products has
increased. You have financial products, which in part have a certain mutual
fund component to it; you have financial products, which have a certain420 insurance component to it. Now, when you
have a financial product which is a hybrid, having an insurance component and a
financial component to it, who will be the regulator? Theoretically, you can do
this hair-splitting but practically when you come into the market to have a
split jurisdiction over a single product, it is going to very badly impact480 on the efficacy of that product and on the
confidence which the investing public has in that particular product.
Therefore, there is a need to work out a mechanism as to how different
jurisdictions, which have a bearing on a particular product, can be harmonized
so that the investing public has the confidence; and regulation continues to
remain robust so that the confidence in the Indian security market does not
deteriorate.
Mr.
Deputy-Speaker, Sir, the Finance Minister explained as to560 what triggered off this particular
legislation. In April, the Securities and Exchange Board of India came out with
an order, which said that 14 insurance companies would not be allowed to sell
the unit-linked productivity schemes. The next day, the Insurance Regulatory
and Development Authority came out with another order, which said that the
directions of Securities and Exchange Board of India should not be followed and
these 14 insurance companies can go on functioning and selling these products.
Now, 640 where does that leave
the investing public? Here, it is not a question of regulators competing with
each other. As I pointed out, it reflects the maturity of the Indian market
that both the regulators want to exercise jurisdiction to protect the investing
public. But if there is a conflict of interest, how is that going to be
harmonised? Now,700 my
honourable friend raised a very interesting point. He said that there is a
court order and if the Government was to follow the court order, the matter
would be reconciled and there would possibly be no need to come out with this
legislation. Please allow me to point out just two things. The first is that
all court orders are appealable and in a dynamic security market, decisions
have not only to be taken promptly but have to be taken more than promptly. At
times, intervention is required on the spot in order to ensure that the markets
do800 not start tumbling and
people do not lose money. This prolonged litigation does not suit the health of
the economy.
The
second more important thing is that there is a Supreme Court order, which goes
back to 1997 and the840
Supreme Court order very clearly lays down a mechanism that in case there is a
conflict between the Public Sector Undertakings, rather than coming to court,
the Public Sector Undertakings should first go to a committee of the
Government, which consists of the Cabinet Secretary and a couple of other
Secretaries to the Government of India. They should try and resolve the dispute
amongst themselves. If the dispute cannot be resolved, they can come to the
Supreme Court of India. The Supreme Court itself has told the Public Sector
Undertakings to not come to the court on any smallest of occasion. But what do you do in the case of
Regulators? Here are Regulators who are empowered by Acts of960 Parliament. Regulators, whose
independence has been guaranteed by legislation passed by this House, embody
and embed that independence. Therefore, if980
you have to reconcile the dispute between Regulators, obviously you have to
legislate and that is precisely what the Finance Minister has done today. He
has brought a Bill before this House, which provides for the mechanism wherein
a committee has been proposed in this legislation.
Mr.
Deputy-Speaker, Sir, if any difference of opinion arises with regard to what is
really the character of a financial instrument, then there is a committee which
would consist of the Finance Minister, the Governor of the Reserve Bank, the
Secretary in the Department of Economic Affairs, the Chairperson of Insurance Regulatory
and Development Authority, the Chairman of Securities and Exchange Board of India
and the Chairperson of Pension Fund Regulatory and Development Authority who
would sit down and resolve that dispute. I do not understand as to where the
whole conception of a1120
super Regulator really comes in. My esteemed colleague raised a very
interesting question which really goes to the heart of Indian democracy. It is
the question of integrity. No legislation, howsoever robust it might be,
howsoever sound it might be, whatsoever loopholes it may plug, can ever be a substitute
for the integrity of the person who is charged with the responsibility of
implementing it. If you have a person in a seat of office who has a vested
interest, then that is a democratic causality and the nation has to pay the
price. The nation has to learn to put proper people in proper jobs so that the
responsibility can be discharged with efficaciousness, with a certain sense of
discretion which a job as sensitive as this entails. In this House, the question
of the super regulator has been1260
brought up. Though it does not pertain to this Bill, it brings to bear all
these aspects as this Bill1280
has provided an occasion to raise this matter. If you go back to the economic
crisis of 2008, all the developed western economies which bore the onslaught or
which were the victims of the domino effect of this financial crisis had very
well-regulated structures. They had very robust regulatory bodies in the
financial sector, Then, why did the economic meltdown take place? Why were the
regulators not able to discharge their responsibilities? The answer is that
each regulator had a very vertical focus. He was looking at his very narrow
domain of responsibility. There was nobody stepping back and looking at the macro-economic
picture and trying to plug the loopholes which existed between those regulatory
mechanisms. I think the hon. 1400
Finance Minister, given the fact that he has chaired the economy of this
country over the years, realizes that there is a need for a body to look at the
economy from a macro-economic perspective. That is why he1440 proposed the constitution of a
Financial Development and Stability Council. My submission to the hon. Finance
Minister is that if he wants to enable India to continue to maintain its
regulatory reputation, he should bring the Financial Development and Stability
Council into existence. 1482
