What are the objectives of the proposed Indian Financial Code (IFC)? Examine why this proposal has given rise to controversy. (200 Words)
The Financial Sector Legislative Reforms Commission drafted the IFC in 2013 to review and draft a new legislations for the Indian financial system as it is considered to be fragmented, with gaps, overlaps ,in consistent and arbitrary. The objectives of the proposed Indian Financial Code are:
- Consumer protection: Regulators should ensure that financial firms are doing enough for consumer protection e.g. by ensuring competition and Financial Readdress Mechanism.
- To monitor the failure probability of financial firms.
- In case of financial failure the firms should protect the interests of small customers.
- To check the inbound and outbound capital flows .
- Setting up of a statutory body of Financial Stability and Development Council for minimizing systemic risks.
- Development of market infrastructure by and its redistribution.
- Setting up of monetary target by the finance ministry and the Monetary Policy Committee to achieve it.
- Single Agency to manage government debt.
The criticisms of the IFC code are:
- To constitute a Monetary policy committee the maximum members of which will be from the government would reduce the regulatory and authority of the RBI. The influence of government’s discretion on monetary policy due to electoral politics and budgetary expenditure might affect the macro economy.
- There is a conflict between the RBI and the government as to who would regulate the NBFCs, as the IFC bill defines them as financial service provider, which then becomes bank.
- The International financial stability report of the IMF suggests that that the India’s supervisory of banks, securities market and insurance is well developed in compliance with international standards.
- In the aftermath of Global meltdown in 2008, most of the suffered nations are now giving more autonomy to their central bank. However the trend is reverse in India.
There is a need to have effective legislation for the financial sector considering recent scams like the Sharda, through a more cooperation among the current agencies however tempering with RBI ‘s autonomy which has saved the country from major International financial shocks needs to be thought of.