Government of India Volume I: Analysis and Recommendations

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FINANCIAL INCLUSION AND MARKET DEVELOPMENT inclusion, the instruments should be used in a manner that is least distorting for capital allocation decisions of institutions. 2. Minimising any potential adverse impact on the ability of a consumer to take responsibility for transactional decisions: Consumers should take responsibility for their informed decisions. Instruments of development should be used in such a manner that lead to the least distortion of incentives for consumers. 3. Minimising detriment to objectives of consumer protection, micro prudential regulation, and systemic risk regulation: Instruments should be used in a manner least likely to cause detriment to achievement of objectives of the main financial regulation laws. 4. Ensuring that any obligation imposed on a financial service provider is commensurate and consistent with the benefits expected to result from the imposition of obligations under such measures. 102 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION
CHAPTER 11 Monetary policy In the long run, the prime determinant of price stability in a country is the conduct of monetary policy. While price fluctuations on a horizon of a few months may be influenced by other considerations, such as a monsoon failure, these considerations do not explain sustained inflation over multi-year horizons. Advanced and emerging economies have achieved price stability by establishing appropriate institutional arrangements for monetary policy. Price stability is a desirable goal in its own right, particularly in India where inflation is known to hurt the poor. A focus on price stability is also associated with macroeconomic stabilisation. When an economy is overheating, inflation tends to rise; and a central bank that focuses on price stability tightens monetary policy. Similar effects would be found in a downturn, with a drop in inflation and monetary easing. Through this, a central bank that focuses on price stability tends to stabilise the economy. In the 1970s, many countries experienced stagflation: a combination of low GDP growth and high inflation rate. To a large extent, these problems were related to the conduct of monetary policy. From the late 1970s onwards, the shift to a more rules-based monetary policy, and one that was more oriented towards price stability, has helped improve macroeconomic outcomes. The Commission believes that the central bank must be given a quantitative monitorable objective by the Central Government for its monetary policy function. Whereas the Commission recognises that there is broad consensus at an international scale on the need for a central bank to have a clear focus on price stability, after much discussions, it has decided to not specify such a requirement in the draft Code. Instead, the objective that the central bank must pursue would be defined by a Central Government and could potentially change over the years. If, in the future, the Government felt that the appropriate goal of monetary policy was a fixed exchange rate, or nominal GDP, then it would be able to specify these goals. The problems of independence and accountability have unique features in the field of monetary policy. In the areas of consumer protection, micro-prudential regulation and resolution, independence and accountability are required in order to reduce the extent to which individual financial firms facing enforcement actions bring pressure on financial regulators. In contrast, in the field of monetary policy, there is no engagement with individual financial firms. The objectives are at the level of the economy; the instruments utilised are at the level of the economy. Monetary policy does not require conducting inspections of financial firms and writing orders at the level of one financial firm. FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 103
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Government of India _______________
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Contents Acronyms . . . . . . . . .
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CONTENTS 12 Public debt management
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ACRONYMS FSAT Financial Sector Appe
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Acknowledgement When the Ministry o
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ACKNOWLEDGEMENT appreciate the effo
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EXECUTIVE SUMMARY rience till date.
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EXECUTIVE SUMMARY out many processe
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EXECUTIVE SUMMARY can issue regulat
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EXECUTIVE SUMMARY Alongside this, i
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EXECUTIVE SUMMARY to analyse one co
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Contracts, trading and market abuse
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5. A new Financial Redressal Agency
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EXECUTIVE SUMMARY States GDP as of
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1.2. Deliberations in the Commissio
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INTRODUCTION amendments frequently
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INTRODUCTION sectoral composition o
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INTRODUCTION The Commission has und
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CHAPTER 2 The tasks of financial la
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THE TASKS OF FINANCIAL LAW This is
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THE TASKS OF FINANCIAL LAW ◮ “i
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THE TASKS OF FINANCIAL LAW 2.5. Own
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THE TASKS OF FINANCIAL LAW desirabl
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CHAPTER 3 Structure of the regulato
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STRUCTURE OF THE REGULATOR Table of
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CHAPTER 4 Functions and powers of t
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FUNCTIONS AND POWERS OF THE REGULAT
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CONSUMER PROTECTION The consumer pr
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Table of Recommendations 5.4 Princi
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CONSUMER PROTECTION using or disclo
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CONSUMER PROTECTION providers. The
Page 84 and 85: CONSUMER PROTECTION Table of Recomm
Page 87 and 88: CHAPTER 6 Micro-prudential regulati
Page 89 and 90: MICRO-PRUDENTIAL REGULATION let tha
Page 91 and 92: MICRO-PRUDENTIAL REGULATION Table o
Page 97 and 98: MICRO-PRUDENTIAL REGULATION PRINCIP
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Page 102 and 103: RESOLUTION payment systems. The cor
Page 104 and 105: RESOLUTION Commensurately, the corp
Page 106 and 107: Table of Recommendations 7.3 Intera
Page 108 and 109: Table of Recommendations 7.5 Powers
Page 110 and 111: Table of Recommendations 7.7 Fundin
Page 113 and 114: CHAPTER 8 Capital controls Capital
Page 115 and 116: CAPITAL CONTROLS 2. Absence of judi
Page 117 and 118: CAPITAL CONTROLS Table of Recommend
Page 119: CAPITAL CONTROLS Table of Recommend
Page 122 and 123: Table of Recommendations 9.1 Object
Page 124 and 125: Table of Recommendations 9.3 Establ
Page 126 and 127: SYSTEMIC RISK filings by financial
Page 128 and 129: SYSTEMIC RISK Table of Recommendati
Page 130 and 131: egulatory agencies. In such a situa
Page 132 and 133: FINANCIAL INCLUSION AND MARKET DEVE
Page 136 and 137: Table of Recommendations 11.1 Objec
Page 138 and 139: Table of Recommendations 11.2 The m
Page 140 and 141: Table of Recommendations 11.3 Board
Page 143 and 144: CHAPTER 12 Public debt management 1
Page 145 and 146: PUBLIC DEBT MANAGEMENT of the publi
Page 147 and 148: PUBLIC DEBT MANAGEMENT State Govern
Page 149 and 150: PUBLIC DEBT MANAGEMENT Table of Rec
Page 151 and 152: CHAPTER 13 Foundations of contracts
Page 153 and 154: FOUNDATIONS OF CONTRACTS AND PROPER
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Page 164 and 165: 14.2. Problems of the present arran
Page 166 and 167: FINANCIAL REGULATORY ARCHITECTURE T
Page 168 and 169: FINANCIAL REGULATORY ARCHITECTURE w
Page 170 and 171: TRANSITION ISSUES On the functional
Page 172 and 173: TRANSITION ISSUES service providers
Page 174 and 175: SUMMARY OF RECOMMENDATIONS NOT EMBE
Page 177: CHAPTER 17 Conclusion Financial eco
Page 180 and 181: 18.2. Note of dissent by K.J. Udesh
Page 182 and 183: 18.3. Note of dissent by P.J. Nayak
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NOTES OF DISSENT A second difficult
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NOTES OF DISSENT 6. The present arr
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CHAPTER 19 Annexes 19.1. Formation
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ANNEXES 19.2. List of consultants,
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ANNEXES * Did not participate in th
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ANNEXES 19.5. Interactions with aut
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ANNEXES (c) Examine whether informa
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ANNEXES 2. General development of m
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ANNEXES 19. Role of surveyors: (a)
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ANNEXES 6. The law must provide for
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ANNEXES 31. Resolution of insurance
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ANNEXES 3. As shocks can spread thr
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ANNEXES 19.8.2. Terms of Reference
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ANNEXES (d) The Board of the target
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ANNEXES 2. The PDMA should adopt a
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ANNEXES 3. On the issue of co-opera
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ANNEXES 14. Regulators must look at
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ANNEXES 31. The WG recommends the m
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ANNEXES (b) Efficiency of DRT: Suit
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ANNEXES (c) Pledged shares and exem
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ANNEXES 19.11. Interactions by the
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ANNEXES 19.13. Submissions to FSLRC
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Government of India Volume I: Analysis and Recommendations

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