Regulation in Ancient Times and Modern RBI
The Roman censor was a powerful regulator in ancient times, responsible for conducting the census, assessing taxes, planning infrastructure, and upholding public morals. Their absolute power was justified by the need for sovereignty, speed, and impeccable judgment.
RBI's Recent Regulatory Actions
The Reserve Bank of India (RBI) has faced criticism for its lack of transparency and inflexibility, particularly in its recent actions such as revoking payment bank licenses, raising risk weights for unsecured loans, and imposing strict compliance deadlines.
Introduction of New Regulatory Framework
- On May 7, RBI introduced the 'Framework for Formulation of Regulations' aimed at improving transparency and dialogue.
- Key concessions in the framework include:
- Consulting with stakeholders and the public before publication of any new or amended regulation.
- Conducting an impact analysis prior to finalization of regulations.
- Periodically reviewing existing regulations for relevance and alignment with global best practices.
Historical Context of RBI's Consultations
RBI has historically engaged in consultations with stakeholders, although informally. This included pre-policy discussions and setting up committees to generate practical suggestions.
Government Influence and Economic Context
The new framework may be influenced by the Government of India's efforts to simplify business regulations amid economic challenges. It aims to bridge the gap between regulated entities and the regulator.
FSLRC Recommendations and Future Steps
- The Financial Sector Legislative Reforms Commission (FSLRC) recommended that regulations be backed by cost-benefit analysis and made through open consultation.
- FSLRC advised that regulatory actions should involve prior notification and hearing of affected parties.
- To ensure transparency and accountability, FSLRC recommended parliamentary ratification of the consultative process.
Conclusion: Need for Responsible Regulation
India requires a responsible regulatory framework that balances control, collaboration, and sustainable growth, as opposed to arbitrary and overbearing regulation that could become obsolete like the ancient Roman censor.
