The finance ministry has relented on a key recommendation of the Financial Sector Legislative Reforms Commission (FSLRC) as it looks to get Reserve Bank of India governor Raghuram Rajan's backing for big-ticket financial reforms.
The central bank's decisions will not face judicial review by the proposed Financial Sector Appellate Tribunal (FSAT) that is meant to hear all appeals pertaining to the financial sector. The BN Srikrishna-headed FSLRC had recommended that FSAT hear appeals against RBI, pitching it as oversight to "ensure greater scrutiny over the actions of the regulator". This would have meant another layer of scrutiny in addition to that of constitutional courts.
"In the proposed setup, FSAT will not be empowered to undertake judicial review of RBI's regulatory decisions," said a finance ministry official aware of the development. Finance minister Arun Jaitley has endorsed this view.
Guv's support critical
It will also reassure a central bank that has not been enthusiastic about recommendations regarded as eroding its clout.
Rajan has been explicit about his views on the suggestions, particularly in relation to regulatory functions, calling them "schizophrenic" and arguing that implementing them could turn RBI into a "paper tiger". Former central bank governor D Subbarao had also expressed reservations about the FSLRC recommendations.
The governor's support is critical as the finance ministry has begun implementing the FSLRC's recommendations, setting up four task forces last week, indicating that it was ready to press ahead with a broader reforms programme as suggested by the panel.
The task forces will draw up the roadmap for creation of the Public Debt Management Agency, Resolution Corporation and Financial Data Management Centre in line with the new government's intent to pursue aggressive financial sector reforms.
The FSLRC report had been submitted to the previous UPA government but the Modi administration, keen to pursue financial sector reforms, has decided to take forward the commission's recommendations.
"It is essential to strengthen and modernise the legislative regulatory framework," Jaitley had said in his July 10 budget speech. "There are some important recommendations of the Financial Sector Legislative Reforms Commission, like the enactment of the Indian Financial Code, which is considered necessary for better governance and accountability. It will be my endeavour to complete the process of consultations with all the stakeholders expeditiously on this."