He made the point that since the Finance Minister is answerable to Parliament on the problems of the millions of investors and not the regulators, it is the responsibility of the Finance Minister also to ensure that no dispute between the regulators leads to the harassment of the investors.” There must be a place where the buck stops and it is the finance minister where the buck stops”, he said.

The bill was passed by a voice vote in the Lok Sabha despite opposition by the BJP and the Left members but the opposition presence was small and it was quite easy for the treasury benches to get the bill passed through voice vote. The bill will now be passed by the Rajya Sabha and then after Presidential assent, the Act will be notified and this will be done shortly. Finance Ministry sources did not expect such smooth passage of the bill in the Lok Sabha and they all gave the credit to the political acumen of the Finance Minister in solving the dispute over adjournment motion on price rise with the opposition leaders at the breakfast meeting on Monday morning and then following it up with the passing of the two important bills in the Lok Sabha during the day. Apart from the Securities and Insurance Laws, the Lok Sabha also approved a bill on Monday that will allow State Bank of India to reduce the Government holding in the bank to 51 per cent and raise funds from the capital market.

This passing of the SBI bill is significant since the Insurance Laws Amendment Bill 2008 which seeks to raise the foreign direct investment to 49 per cent from the present 26 per cent is still before the Standing Committee on Finance of Parliament for discussion but the Finance Minister is committed to pass the long pending bill before the United States President Obama visits India in November this year. Finance ministry sources now feel that following the positive developments on Monday through the passing of two important financial sector bills, the stage is set for taking the next step of pushing the Insurance Laws Amendment Bill and this will be the priority agenda of the Finance Minister in the coming days.

Finance Minister this time might have persuaded the RBI Governor to accept the position of vice chairman in the joint committee headed by him stipulated in the Securities and Insurance Laws bill, but this does not mean that the RBI has given up the battle for its autonomy altogether. In his budget speech early this year, Mr. Mukherjee proposed the setting up of a Financial Stability and Development Council (FSDC) and accordingly a discussion paper was released by the finance ministry. The RBI has not agreed to many of the points made in this paper. In a letter sent to the finance ministry, RBI has pointed out that the responsibility for financial stability and regulation of the financial sector should remain with the RBI and there is no need for a body like FSDC headed by the Finance Minister. It has suggested that there can be an empowered committee in the Government to be headed by the RBI Governor.

The discussion paper has suggested that FSDC should have two committees- the one on regulatory coordination chaired by the RBI Governor and the other on financial stability to be headed by the finance secretary. RBI letter points out that the FSDC discussion paper in its present form exceeds the parameters on the FSDC mentioned in the budget speech. The proposals are also not in line with the role of similar councils/commissions for financial stability conceived internationally in countries where significant failure of micro and macro prudential supervision has been perceived.

RBI letter has mentioned of the comments made by the Finance Minister at the time of the budget and at RBI's platinum jubilee function to make the point that the discussion paper was more ambitious than the minister's intention. The proposals in the discussion paper give the FSDC a super regulatory role which is not needed. This is neither in consonance with the spirit of the budget announcement nor in line with the expressed opinion of the finance minister.

RBI is in fact peeved at the way government officials have mentioned of the functioning of the high level coordination committee on financial markets which is headed by the RBI Governor. There have been differences among the members but RBI points out that these are healthy differences and it can not be the case that the proposed FSDC will not entertain honest differences among the regulators.

The letter of the RBI to the finance ministry is a clear pointer that while on the ordinance on ULIPs which has been converted into a bill, the central bank has agreed to the joint committee headed by the Finance Minister and the bill has got the nod from Lok Sabha, it will not surrender its rights further and it will oppose the constitution of the FSDC in its present form. RBI is firm in its view that the regulation of the financial sector should be left to the regulators within the framework of the policies laid down by the Government and let RBI play the role of super regulator which it has been playing successfully so long. Nothing extraordinary has happened in the last few months to invite direct intervention of the Finance Minister on the major issues concerning regulators, it says.

This is in sharp contrast to the position made by the Finance Minister in Parliament on Monday that the buck stops with the Finance Minister and the Government can not be unconcerned to the plight of the millions of common people when the regulators fail to come to an understanding. This battle between the finance ministry and the RBI on the autonomy issue will be protracted, it seems since Mr. D V Subba Rao is a strong man and he is not easily giving up his rights as the super regulator. (IPA Service)