Government authorities finally responded but as usual, their response was late! And people had to suffer.
Rules were formulated and laid down mainly with the intention to bring about transparency and accountability in this sector. Though proactive measures (and not reactive!) were needed to be taken but, as the saying goes, better late than never!
Legitimate licenses were issued to the investment houses of any and every sector after thoroughly scrutinizing their credentials and credibility. Simultaneously, those working in these fields were also issued licenses after ascertaining their qualifications and job knowledge. In other words, a “code of ethics” was established in the investment management sector.
As a result, many small players got wiped out from the scene and had to close their shop. The market could breathe freely and the investors could feel the freshly inducted “financial discipline”. Though this was an ongoing process. Rules were revised or promulgated at regular intervals wherever felt necessary.
In this context, let’s read some of the very interesting articles which talk about the efforts being made to bring about reforms in our financial regulatory system during the last couple of years.
“The financial system is now regulated with the help of independent regulators, associated with the field of insurance, banking, commodity market, and capital market and also the field of pension funds. On the other hand, the Indian Government is also known for playing a significant role in controlling the field of financial security and also influencing the roles of such mentioned regulators.” States Vidhyaa Sree, the Content Writer in Financial Services.
India embarked on substantial economic liberalization in 1991. In the field of finance, the major themes were the scaling back of capital controls and the fostering of a domestic financial system. This was part of a new framework of embracing globalization and of giving primacy to market-based mechanisms for resource allocation.”
“India’s financial system has long been inadequate. With an economy worth $2 trillion, the country’s financial flaws are increasingly serious and outright dangerous. But fundamental change is under way. The government-backed Financial Sector Legislative Reforms Commission drafted the Indian Financial Code (IFC), a single unified law that replaces most existing financial law in India and is an important milestone in the development of state capacity. Now the government must work to adopt and implement the full code.”
“MODERNIZING INDIAN FINANCE”
Existing laws in India are rooted in the notion that the state is benevolent and feature few checks and balances. The draft IFC steps away from this idea of power without accountability.
Financial law should reflect an understanding of market failures in finance. It should acknowledge that bureaucrats and politicians serve their own interests, not necessarily those of the general public. Objectives for financial regulators and mechanisms governing their functions should be clearly specified, and laws should hold leaders of government agencies accountable for performance.
The IFC will transform India’s financial laws, regulatory architecture, and regulatory functions, providing a modern and consistent framework based on the rule of law, regulatory independence, and accountability.
The draft code addresses nine areas that require reforms: consumer protection; micro-prudential regulation; resolution mechanisms; systemic risk regulation; capital controls; monetary policy; public debt management; development and redistribution; and contracts, trading, and market abuse.
The full adoption of the IFC will help build a financial system that allocates resources well, achieves higher growth, and reduces risk.”
Reforming India’s Financial System
ILA PATNAIK, AJAY SHAH
JANUARY 29, 2014
So, we can clearly see how the govt. responded and the steps taken for redressal of this un/dis-organized sector. International financial integration, under globalisation, made these steps not only necessary but also urgent.
In my next article (Solution-2), we will see the “Watchdogs of India’s Financial Regulatory System”.
Hope you have enjoyed reading this article. Please share it with those whom you feel are interested in this subject. I will be very happy to receive your comments and queries if any.