UPSC MAINS 2019 : Sucking up surplus

Sucking up surplus

Topic : Sucking up surplus

Topic in Syllabus: General Studies Paper 3: Indian Economy

 

Context:

Sucking up surplus

As part of the 2019-20 Budget, the Finance Bill has been introduced in the Parliament and the Centre has proposed amendments to the Securities and Exchange Board of India Act, 1992. Thegovernment’s proposal to transfer surplus money with the Securities and Exchange Board of India (SEBI) to the Consolidated Fund of India (CFI) has met with a strong opposition from the regulatory body.

 

Background:

The Centre’s decision to clip the wings of the Securities and Exchange Board of India has not gone down too well with its members. Yet, the Centre is refusing to budge. In a letter dated July 10, SEBI Chairman Ajay Tyagi said the Centre’s decision to suck out SEBI’s surplus funds will affect its autonomy.

 

Securities and Exchange Board of India (SEBI)

  • The Securities and Exchange Board of India (SEBI) is the most important regulatory body of the securities market in the Republic of India.
  • The Securities and Exchange Board of India was established as a non-statutory regulatory body in the year 1988, but it was not given autonomous, statutory powers until January 30, 1992, when the Securities and Exchange Board of India Act was passed by the Parliament of India.
  • SEBI drafts regulations and statutes in its legislative capacity pass rulings and orders in its judicial capacity and conduct investigations and enforcement actions.
  • Some criticize SEBI for its lack of direct accountability to the public and its rather absolute powers.
  • Since inception, SEBI is subjected to CAG audit, not a single instance of financial imprudence is observed.
  • The surplus of the SEBI moneynormally goes to General Fund of SEBI which is over of Rs.3,000 Cr. It is used to meet the expenses of a regulatory body including, salaries and allowances.
  • The fund gets money by the charges that SEBI levies on market participants in the form of registration or processing fees.

 

Proposed amendments:

  • These proposed amendments are bound to affect SEBI’s financial autonomy and independence.
  • To be specific, the amendments required that after transferring 25% of its surplus cash to its reserve fund in any year, SEBI will have to transfer the remaining 75% to the government i.e. to the consolidated fund of India.
  • Further, the size of such reserve fund cannot exceed the total of annual expenditure of the preceding two financial years.
  • More importantly, the surplus of the general fund, after factoring in all the SEBI expenses and the transfer to the reserve fund, needs to be transferred to the CFIas per amendments proposed in the Finance Bill, 2019.
  • The proposed amendment (is being made) through a money bill as against the current provisions in the SEBI Act, which were well debated in Parliament and enacted thereafter.

Regulator bats for Fin Autonomy

 

Opposition to amendments:

  • This decision has been opposed by the SEBI and its officials and employees have written letters to the Finance Ministry enumerating their objections.
  • SEBI feels that this decision would impinge upon the financial autonomy of the regulator and it is similar to the complaint raised by the RBI in the past against the Centre regarding its own funds.
  • The recent tension between the RBI and the Finance Ministry was also about the transfer of reserve funds to the Centre, and what this implied for the central bank’s autonomy.

 

The reason behind the amendment to the SEBI acts

  • Critics argue that it is highly unlikely that the quantum of funds that the government is likely to receive from SEBI will make much of a difference to the government’s overall fiscal situation.
  • So, the amendment to the SEBI Act seems to be clearly motivated by the desire to increase control over the regulator rather than by financial considerations.
  • This is particularly so given that the recent amendments require SEBI to seek approval from the government to go ahead with its capital expenditure plans.

 

Impacts of amendments

  • A regulatory agency that is at the government’s mercy to run its financial autonomy and administrative operations cannot be expected to be independent.
  • Further, the lack of financial autonomy can affect SEBI’s plans to improve the quality of its operations by investing in new technologies and other requirements to upgrade market infrastructure.
  • This can affect the health of India’s financial autonomy in the long run.
  • The Centre perhaps believes it can do a better job of regulating the economy by consolidating all existing powers under the Finance Ministry.
  • But such centralisation of powers will be risky.

 

Conclusion

Regulatory agencies such as SEBI need to be given full powers over their assets and be made accountable to Parliament. Stripping them of their powers by subsuming them under the wings of the government will affect their credibility.

 

Sample Question

A regulatory agency that is at the government’s mercy to run its financial and administrative operations cannot be expected to be independent. In light of this statement discuss proposed amendments to the Securities and Exchange Board of India Act, 1992.

 


 

Sucking up surplus infograph