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Making Budget 2025 reforms work: The road to effective implementation

2 min read

Challenges in India's Regulatory Framework

Over the past decade, regulatory challenges in India have become increasingly prominent, leading to proposals in the 2025 Budget to address these issues.

Financial Regulation

  • The Finance Minister announced a mechanism under the Financial Stability and Development Council (FSDC) to evaluate the impact of existing financial regulations and develop a responsive framework for the financial sector's growth.
  • Regulation involves using state power to influence behavior, ideally addressing market failures rather than veering into central planning.
  • In India, the most powerful regulators are in finance, with significant influences drawn from models like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi).
  • There is a growing consensus that financial regulation in India is leaning towards central planning, undermining the rule of law.

Challenges with Implementation

  • The FSDC is tasked with evaluating financial sector regulations, but its limited capacity and previous lack of substantive action raise questions about its effectiveness.
  • Financial regulators produce extensive regulations, posing challenges in comprehension and implementation.
  • The FSDC's small secretariat is unlikely to challenge the entrenched positions of established regulators.

Proposed Improvements

  • The Ministry of Finance (MoF) should leverage the FSDC to improve regulatory processes using regulatory theory.
  • An example is Sebi's move to regulate how it creates regulations, a step advocated for since 2013, albeit with limitations.

Regulation Beyond Finance

  • The government plans to update outdated regulations with a modern framework, proposing a High Level Committee for Regulatory Reforms (HLCRR).
  • The HLCRR is expected to review non-financial sector regulations within a year, but its scope and ability to address diverse regulations remain unclear.
  • Like the FSDC, the HLCRR faces challenges in understanding and influencing broad regulatory domains given the extensive existing regulations.

Strategic Approach

  • Instead of focusing on specifics, the HLCRR should draw from Indian regulatory theory to redesign frameworks.
  • Focusing on improving one or two non-financial regulatory bodies could be more feasible.
  • Tags :
  • Financial Stability and Development Council (FSDC)
  • India's Regulatory Framework
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