Overview of the Ministry of Finance (MoF) Structure and Challenges

The Ministry of Finance (MoF) in India is central to the country's economic governance, functioning as the main financial authority of the Union government. A report by Vijay Kelkar, formed over 20 years ago, still serves as a foundational document for understanding how to build an effective MoF. 

Current Structure and Functionality

• The MoF is currently divided into six different departments: 
  1. Department of Economic Affairs (DEA)
  2. Revenue
  3. Expenditure
  4. Financial Services
  5. Investment & Public Asset Management
  6. Public Enterprises
• This division contrasts with other ministries like the Ministry of Home Affairs or Ministry of External Affairs, which do not have such intra-ministry departmental demarcations.
• Unlike other secretaries like the home and foreign secretaries, the finance secretary does not have authority over other departments, limiting their ability to unify the ministry's voice.

Challenges in Financial Sector Policy

• There is a consensus that the separation of banking, insurance, and pensions from the DEA in 2007-08 did not work well, necessitating a unified approach to financial policy.
• The MoF is surrounded by various regulatory agencies, leading to overlaps and gaps that require coordination by the Financial Sector Development Council (FSDC).
• Despite the push for a unified regulatory agency, there is opposition due to conceptual differences and entrenched interests.

Global Trends and Policy Recommendations

A global shift towards the principle of "same risk, same regulation" contrasts with India's sector-specific regulatory practices. This inconsistency is evident in several areas:

• RBI’s regulation of alternate investment funds
• SEBI’s handling of mutual fund investments in AT1 bonds
• Regulations concerning credit rating agencies and pension products by various regulators

Adopting a sector-agnostic financial policy could help align with international standards and improve regulatory consistency.

Recent Developments and Reforms

• Key reforms like inflation targeting, GST, and IBC have emerged from the MoF, often overcoming resistance from regulatory bodies.
• Recent staffing changes, including unusual movements of secretaries during budget time, highlight the need for addressing tenure and structural issues.

Conclusion

The MoF's structural and policy challenges underscore the importance of institutional reforms to enhance its effectiveness and align with global practices. The report and the author emphasize the need for a unified, capable MoF that can address both domestic and international financial challenges efficiently.