In India, RBI has an edge to regulate key financial markets, money markets, government securities market, credit market and forex market besides the usual role of a central banker. This enables RBI to apply regulatory purview over the interconnected channels between banks and other financial sector entities. But with such unusual regulatory load, does RBI justify its every role as top authority from financial stability perspective? It's hard to surpass the growing overload on RBI – announcement of Financial Sector Legislative Reform Council (FSLRC) and Financial Sector Development Council (FSDC), during the last Union Budget have even made the RBI'S overtures with Finance Ministry more complex. The mammoth task and hyped expectations forced RBI Governor, Mr. D.Subbarao for the denial of additional charge of debt market under the purview of RBI. He even laid stress for divulging the enormous existing power from governor to respective committees on key policy decisions. Out of conservatism and indeed with many insightful policy measures, RBI has ensured over the years a stable growth of Indian financial market albeit, the shade on its autonomy and new circumstances in the post reform era have diminished its earlier touch on crucial policy matters. RBI knows that despite hard efforts, half of Indian population is outside the purview of the banking system; therefore the goal of financial inclusion is distant reality. Finance Ministry on the other hand works on popular temptations of growth instead considering inclusive and stable development of economy. Confrontations between RBI and the Finance Ministry, especially in the last few years have sharpened and it's obviously an unfortunate outcome.  Finance Ministry's intervention in day to day working of RBI is a worrying trend and must be checked. Otherwise the nerves of Indian financial market can get derailed from the esteemed regulation of RBI.

Following the incessant soft touch on credit policy and its ineffective impact on inflation in last few quarters, RBI has increased the Repo and Reverse Repo Rates by 50 basis points and deregulated the Saving Bank Deposit Interest Rate. In a recent discussion paper on Saving Bank Deposit Interest Rate (RBI, April 2011), the reason cited was that monetary policy transmission has been suboptimal as it was unchanged since 2003, when the rate was last raised from 3.5% to 4%. As expected, banking stocks tempting negative past incessant interest rate hikes {eleven times since last financial year}and timid credit policy of RBI. In the days ahead, out of this and painful global financial sentiment, investors will have to face the perplex scenarios. Inflation is a much bigger issue and RBI Governor, Mr. D. Subbarao sounds very rational when he says there is no quick-fix solution for inflation control in a rapidly growing economy like ours. In a complex economic matrix, it's truly unreasonable to expect that only monetary policy will ease the pain of inflation. Those who are political authorities have to realize sooner that inflation is not strictly the sole by-product of demand supply mismatch from the technical parameters of Whole Sale Price Index (WPI) and Consumer Price Index (CPI). The growing nexus of cohort's like corporate, politicians, government officials and relentless supply of unclean funds by multiple routes including suspicious Sovereign Wealth Fund, Participatory notes are making this nation rich in terms of obscene number of billionaires but leaving a majority lagging behind. This in itself narrates the story of our wounded economy.

Amidst the surging scams, Government/ Regulators stand like mute spectators which mark the complete shift of democratic values. In 1958, Feroze Gandhi (Nehru's son-in-law) started a debate in Lok Sabha to inquire about few lakhs of wrong investments done by state-owned Life Insurance Corporation in tainted industrialist, Haridas Mundhra's companies. (Refer to “The Mundhra Affair”, Indian Express, December 12, 2008, Inder Malhotra) Nehru gave a sharp response (unlike present day reactions of the government). 

He spoke of the “Majesty of Parliament” and instantly ordered a judicial inquiry by one of the most remarkable judges, Mr. M. C. Chagla. The inquiry's findings led to the resignation of the Finance minister Mr. T. T. Krishnamachari and an exceptional civil servant, Mr. H. M. Patel. This was the first case of high level official's sacking in the history of democratic India.  Alas, similar responses could not be replicated there onward and what we have instead witnessed is the consistent erosion in democratic values with terrible misuse of power.

In such gloomy parochial atmosphere, it is hardly surprising to see the performance of regulators like SEBI and IRDA who run like sovereign horse – without any clear mandate or essential/ constructive intervention from government. Mr. G. Mohan Gopal, (former board member of SEBI) has recently highlighted how SEBI's board abused powers to protect Mr. Chandrashekhar Bhave (then Chairman, SEBI) in the IPO scam of 2003-06. It is an open secret now how Mr. Bhave had made the highly promising Indian Mutual Fund Industry sluggish through numerous ambiguous regulatory changes. He scrapped the load regime that made this sector unattractive in terms of employment. Further, the very unfortunate spat with the insurance regulator, IRDA over ULIP products finally forced the mutual fund business to the side lines. Apart from jeopardizing the industry, he outgrew the credible impression of fund management in India. The present Chairman of SEBI, Mr. U. K. Sinha's performance and announcements are equally lack luster and ambiguous. Without any reversal on entry loads, he has plans to widen the geographical spread of mutual fund business, which is completely ironical. Another fatal step he proposes to make is by pushing the investments of pension and retirement funds on the line of global markets and trends. Ruling out a review on the asset qualities and nature of funds with an extra regulatory shortfall, here in India, mutual funds' ordeal is seems far from being over.

Presently, Indian financial market is grappling with many awkward regulatory instances – a swift appropriation is worthwhile in some areas by little more supplementation of regulatory measures. At the other end, relaxation to let them work freely and in accordance to situation instead of popular demands would be beneficial. As the entry of third generation private sector banks and many other reforms are on hold, government must collaborate with regulators more efficiently without deviating due to political compulsions to push forward the Indian financial sector for this transition. Integrity and performance by the three regulatory arms of Indian financial sector – RBI, SEBI and IRDA will decide the overall growth of Indian economy in the coming years. The unquiet regulation can lead to doom, so it is terrible and undeserving. An efficient regulation instead can further the broader task. The government should choose the latter option and make the ground clear for positive and impartial business. In the meantime, we have to wait and see when and how the financial regulation gets streamlined.