The Hindu Business Line : Best practices route urged for financial sector reforms

THE Finance Minister, Mr P. Chidambaram, on Thursday held that an 8 per cent growth in the gross domestic product (GDP) is attainable so long as the question of how to create a financial sector that can "foster and support" such a growth is debated and effectively addressed.

Inaugurating a conclave on `Second Generation Financial Sector Reforms' here, Mr Chidambaram highlighted that the progress in financial sector reforms has so far been in "fits and starts."

"Many financial sector reform measures in early days were done by a trial and error method. We need to avoid the trial and error route and adopt the best practices route.

"I have already asked Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA) to adopt best practices. We need to be open to new ideas and if need be, induct human resources from elsewhere in the world. We have to strengthen implementation," he said.

The three-day conclave is being organised by Integrated Research for Action and Development (IRADe) and Invest India Economic Foundation (IIEF).

Mr Chidambaram also strongly hinted that he favoured professionals with domain experience and domain knowledge for managing the regulatory institutions in the country. "We have a lot of experienced persons. But do they have domain experience and domain knowledge? Professionals with domain knowledge and domain experience should run regulatory institutions," he said.

Reiterating the United Progressive Alliance (UPA) Government's resolve to strengthen regulatory institutions and expand competition in the financial sector, Mr Chidambaram said the common minimum programme's "mandate is very clear."

He said that the Pension Fund Regulatory and Development Authority (PFRDA) would be constituted in the next few weeks. "The creation of PFRDA will more or less complete the architecture that we desire for the financial sector. We have already unleashed two major new agencies — SEBI and IRDA — into the system," he said.

The Finance Minister used the occasion to flag a number of issues on financial sector reforms, which may get addressed in the coming weeks and in the ensuing Budget for 2005-06.

He raised the larger question of a single regulator for the entire financial sector on the lines of the Financial Services Authority (FSA) of the UK.

"Should we have one FSA like the UK or do you think that India is too big for one FSA? I have no final view on this. I have flagged the point and I think the debate on this would continue," he said.

The Finance Minister asked policy makers, economists and finance practitioners attending the conclave to come up with suggestions and solutions "on how the existing cluster of financial sector regulators can be made to function better?"

He also sought suggestions on a host of issues, including the strategy for the next step in financial sector reforms, steps that can be taken to improve the financial sector's architecture for ensuring world-class implementation from financial sector regulators and measures to enhance competition among the sector's players.

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