Government of India Volume I: Analysis and Recommendations

CHAPTER 15
Transition issues
Once the government decides to move forward with the Indian Financial Code, transitioning
from the existing setup to the framework proposed by the Commission will require
planning and co-ordination. If not managed well, regulatory uncertainty could introduce
considerable difficulties in the system. The Commission recommends that the Central
Government should consider establishing a focused project team within the Ministry of
Finance to facilitate the overall transition process. This team must be provided adequate
staff and resources to enable effective discharge of its functions. The Commission suggests
that the tasks of the project team would be to:
1. Create and implement an overall blueprint for the transition to the new legal framework;
2. Steer the draft Code through the entire legislative process;
3. Facilitate information flows and co-ordinate with relevant departments or agencies of the government,
including existing regulators;
4. Determine the manner in which existing regulations will be phased out and the timing of the draft
Code coming into effect; and
5. Identify the steps to be taken to ease the transition process for regulated entities, such as onetime
exemptions from capital gains tax or stamp duty requirements.
To ensure that the transition is achieved in a timely and organised manner, the project
team must devote significant efforts towards laying the groundwork for the actual creation
and operation of new or modified agencies. In this context, the Commission suggests:
1. Aligning ongoing work with project plan: The project team must examine pending bills or
draft regulations relevant to the financial sector in order to assess whether they are aligned with
the key ideas of the proposed framework, as accepted by the Government. In the event of any
material deviation, the project team may recommend that the Government consider the withdrawal
of any bill that has been placed before Parliament.
2. Introducing some elements into existing practice: The Commission is of the view that many
of its recommendations, particularly in the field of regulatory governance, build upon or formalise
existing regulatory practices and procedures. Therefore, to the extent possible, the Commission’s
recommendations on regulatory governance can be implemented by the existing regulators
with immediate effect. For example, many regulators already invite public comment on
draft regulations. A requirement that all public comments received must be published can be enforced
with immediate effect. Such steps will not only ease the transition process, but also allow
the regulators more time to modify their internal processes.
3. Preparation for creation of new agencies: With FRA, PDMA FDMC and FSAT, there is a particularly
important role for the development of information technology (IT) systems. The development
of these systems can commence ahead of time. The second ingredient is the physical
facilities to house the new group of agencies. This would also benefit from advance work.
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 137