NEW DELHI: Next up on
India's reforms agenda is the financial sector. After retail, aviation
and fuel prices, the government is getting ready to roll out the
long-overdue, next generation of measures aimed at freeing up the
country's financial sector and a framework for this could be in place as
early as next month.
The plan to kick off the process, stalled for many years, was discussed in the run-up to the appointment of Raghuram Rajan as Reserve Bank of India governor and has the highest political sanction. The reforms blueprint will lean heavily on the two high-profile reports already available with the government, one of them authored by Rajan himself.
"We will have a framework ready soon and will take it to the Financial Stability and Development Council (FSDC) for deliberation before the measures are rolled out," a senior finance ministry official told ET.
The plan to kick off the process, stalled for many years, was discussed in the run-up to the appointment of Raghuram Rajan as Reserve Bank of India governor and has the highest political sanction. The reforms blueprint will lean heavily on the two high-profile reports already available with the government, one of them authored by Rajan himself.
"We will have a framework ready soon and will take it to the Financial Stability and Development Council (FSDC) for deliberation before the measures are rolled out," a senior finance ministry official told ET.
Financial
sector reforms took a back seat after the global meltdown in the belief
that India's conservatism had saved it from the worst effects, which
which wasn't the right lesson to draw from the experience, Rajan had
said in his 2008 report on financial sector reforms, 'A Hundred Small
Steps'.
The policy paralysis that gripped the government in the first three years of the UPA-2 administration (2009-12) also contributed to the lack of progress on changes in the sector even as the government swore on the need to improve financial inclusion.
P Chidambaram's return as the finance minister in August last year was followed by a series of measures to break the policy logjam — fuel price reforms, the opening up of multi-brand retail, the establishment of the Cabinet Committee on Investment. It's now the turn of the financial sector. "The idea is to pick out 10-12 recommendations that could be taken up," the official added.
Drawing up the blueprint for change shouldn't be too onerous as two committees have conducted an exhaustive study of what needs to be done.
The High-Powered Expert Committee (HPEC) on making Mumbai an international financial centre called in 2007 for "deregulating, liberalising and globalising, all parts of the Indian financial system at a much faster rate".
Rajan's 2008 report cited above spoke of the "need to deregulate certain areas of the financial sector" and "focus on creating necessary institutions, and closing important gaps in regulation".
The Reserve Bank has sought suggestions on the banking structure in India in response to a discussion paper released last month. That could yield more ideas for the reforms exercise.
The Rajan committee had suggested more small private banks, disinvestment in small, underperforming state-run banks, the freeing of branch licensing rules, and the greater participation of foreigners in Indian financial markets.
Rajan, reputed as one of the few who warned about trouble ahead of the 2008 financial crisis, has already set the ball rolling in a way with a flurry of announcements on the day he took over as the RBI governor — September 4. He also said that new bank licences could be issued in January. India had first raised the prospect of new banks in 2010. Financial sector reforms are badly needed, experts said.
"This is good news... financial sector reforms in India are long overdue," said Jahangir Aziz, senior Asia economist and India chief economist at JPMorgan Chase. The "past five years we did not touch anything for the fear of doing something unintended".
Aziz also cited the widespread belief in India that the country was ring-fenced in 2008 by the restrictions and controls it had in place and said there had been no empirical study of the cost that taxpayers had to bear.
India's interest rates shot up to among the highest in emerging market economies after the crisis, besides which RBI's foreign exchange losses have been substantial, he said. Even when it comes to financial inclusion, competition is needed to ensure that it happens, he said.
The policy paralysis that gripped the government in the first three years of the UPA-2 administration (2009-12) also contributed to the lack of progress on changes in the sector even as the government swore on the need to improve financial inclusion.
P Chidambaram's return as the finance minister in August last year was followed by a series of measures to break the policy logjam — fuel price reforms, the opening up of multi-brand retail, the establishment of the Cabinet Committee on Investment. It's now the turn of the financial sector. "The idea is to pick out 10-12 recommendations that could be taken up," the official added.
Drawing up the blueprint for change shouldn't be too onerous as two committees have conducted an exhaustive study of what needs to be done.
The High-Powered Expert Committee (HPEC) on making Mumbai an international financial centre called in 2007 for "deregulating, liberalising and globalising, all parts of the Indian financial system at a much faster rate".
Rajan's 2008 report cited above spoke of the "need to deregulate certain areas of the financial sector" and "focus on creating necessary institutions, and closing important gaps in regulation".
The Reserve Bank has sought suggestions on the banking structure in India in response to a discussion paper released last month. That could yield more ideas for the reforms exercise.
The Rajan committee had suggested more small private banks, disinvestment in small, underperforming state-run banks, the freeing of branch licensing rules, and the greater participation of foreigners in Indian financial markets.
Rajan, reputed as one of the few who warned about trouble ahead of the 2008 financial crisis, has already set the ball rolling in a way with a flurry of announcements on the day he took over as the RBI governor — September 4. He also said that new bank licences could be issued in January. India had first raised the prospect of new banks in 2010. Financial sector reforms are badly needed, experts said.
"This is good news... financial sector reforms in India are long overdue," said Jahangir Aziz, senior Asia economist and India chief economist at JPMorgan Chase. The "past five years we did not touch anything for the fear of doing something unintended".
Aziz also cited the widespread belief in India that the country was ring-fenced in 2008 by the restrictions and controls it had in place and said there had been no empirical study of the cost that taxpayers had to bear.
India's interest rates shot up to among the highest in emerging market economies after the crisis, besides which RBI's foreign exchange losses have been substantial, he said. Even when it comes to financial inclusion, competition is needed to ensure that it happens, he said.