Apr 15 2008 Saibal Dasgupta in Beijing
Indian financial markets are closely watching a government move to make regulators accountable to a parliamentary standing committee, which is well known for its ability to closely scrutinise the functioning of different public bodies. Until now, regulators such as the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority have only been accountable to the Ministry of Finance, which in turn reported on their performance to the parliament and its committees.
An experts group, which the ministry appointed, recently suggested that financial regulators should be asked to report their performance to the parliamentary standing committee once a year. The financial industry has welcomed the recommendation and is keen on greater disclosures on the functioning of regulators.
If the recommendations are implemented, it will mean that the finance ministry will have less control and there will be a higher level of transparency. Regulators that have traditionally used confidentiality as an excuse for not disclosing many issues will find it increasingly difficult to block the flow of information in the face of questioning by parliamentarians.
"It is the right thing to do in a democracy. It will bring more transparency in the markets," Badri Ram Prasad, an independent consultant and former adviser to the Mumbai stock exchange told Complinet.
"Parliamentary committees look into many complex and confidential issues like nuclear energy and foreign relations. There is no reason they will not handle this task with a sense of responsibility," he said.
The finance ministry has a tendency to try to talk up the market. Officials often make statements to reassure investors about the strong fundamentals of the economy every time there is a market crash, he pointed out.
"This is a form of government interference in the risk market, which should be allowed to functioning on its own rhythm. Such things do not happen in markets like London," he said.
The government, which controls the bulk of the banking and insurance markets through state-owned companies, may be a little reluctant to allow the parliamentary standing committee to examine financial regulators. Any examination by parliament is bound to expose the ministry as well because regulators are known to take at least some of their decisions under the influence of the finance ministry.
The government, however, is committed to reducing the extent of centralisation and allowing greater autonomy to the functioning of different markets. It might ultimately agree to allow the parliamentary committee to review the functioning of regulators after showing some initial reluctance, sources said.
