Need for a revamp of the financial sector laws in India
Just like fashion, laws tend to go out of date with time. However unlike your wardrobe, changing legislations is a painstaking process. Not only do you have to recognise the modifications required, it has to also go through intense scrutiny before it is tabled at the Parliament where stakeholders and interested parties lobby creating a great struggle to pass the simplest change. Thus more often than not, the Government ends up making small add-ons or modifications to the existing laws which, they hope, will be easier to pass, i.e a quick fix.
This would not be as big a problem if our legislations were principle based; defining the basic expectations of the rights and duties that the legislation is generating. However due to the detailed nature of our legislations each additional add-on/modification has implications on several other parts, which often creates a mess. The idea is similar to a football team with a distinct game-play. Each player plays an important role in the teams overall strategy. Suppose an integral player retires and instead of rethinking their game-play or finding a player that will suit their style, the manager fills the gap by buying a player without much thought. If this process is repeated a few times the entire nature of the team will change and it will stop functioning properly. Players which complemented each other might be replaced by players with conflicting styles. Just like the football team, our legislations too face a similar doom.
There are over 60 Acts and several rules/regulations in the financial sector with some of the laws dating back decades. This is especially inconvenient due the the major changes in the financial sector landscape through the reforms over the years. With each passing round of amendments these laws have become increasingly complex and ambiguous.
What is FSLRC?
The Financial Sector Legislative Reforms Commission was set-up in 2011 by the Government under the Chairmanship of the former Chief Justice of India, Justice Srikrishna. Recognising the problem explained above, the Government set the objective of this commission to harmonising and simplifying the complex and often ambiguous laws of the financial sector in India. For the last nine months I have worked as a member of the Research team that fed into the Commission.
What to expect?
After two years of deliberation and research, the Commission has made its submission to the Ministry of Finance. Volume I of the submission is a detailed report which explains the concepts and argues the case of each of the recommendations made by the Commission. Volume II is a draft Code which entails the actual legislation. This is distinct from previous commissions and committees in this regard as for the first time the law was drafted by the Commission itself.
Another Commission - Another Report - Another waste of time
Some people I have met seem to have the resigned to the attitude that these Commissions, and all the hard work put in them, is a waste of time as our 'corrupt leaders' will not do anything with the research. The track record for India supports their attitude, however as I see it, you have to try and try till you succeed.
What gives me more confidence that this report stands a better chance of implementation is the economic climate of the country. With growth at its all time low and credit rating agencies threatening to categorise the Indian bond as 'junk' (BB) the leaders of the country have a lot to answer for. Furthermore, this law will effect only the financial sector which are big corporates and institutions; not the people who make up the vote banks. Even the corporates which look at the long term and doing a clean business should welcome the reforms unlike the ones which are cozy with the existing regulators. The major obstacle, however, will be the existing regulatory agencies themselves. With the wide spread changes in their jurisdiction, powers and structure, the regulator will probably resist the changes vigorously.
Why should you care?
Policy, politics and finance are all topics that many find too boring or just not important enough to care about it. I am not preaching that an in-depth understanding of the subject is necessary, but finance plays a huge role in each of our lives. It does not matter if you do not have a finance based job, in the end you will need finance to run your own budget. You use 'finance' when you purchase an insurance; when you use EMI for the payment of your cars; when you start saving for your pension etc. Furthermore, it is the financial sector that has the biggest impact on the economy and its growth, thus touching all our lives and livelihood. These laws may dictate the future rules of finance and thus it is important that we give it the attention it deserves.