Now that the CPI(M) is out of the picture, economic reforms in India can once again start in earnest. There is a lot of focus on a few pieces of pending legislation:
- The PFRDA Bill: gives legal foundations to the New Pension System and sets up PFRDA as its regulator.
- Banking Regulation (Amendment) Bill. Breaks the 10% limit on voting rights of shareholders.
- FC(R) Amendment. Permits options on commodities and cash settlement; make FMC a independent regulator.
- Amending the Insurance Act of 1938 which caps foreign shareholding in insurance companies at 26%.
The translation of this queue from Bill to Act would surely be a good achievement. However, I would like to suggest that there is much more to the economic reforms process than this `in tray'. It's useful to divide the task into three parts:
- Things that don't require legislation
- Things that require enactment of one of the pending Bills
- Things that require new work in drafting laws.
I think we do wrong by exclusively focusing on the middle piece (the pending Bills); a lot of what needs to get done is in the other two.
Assuming the PM and the FM decide they want new drafting work done for one piece of legislation, it takes roughly a month of focus for a small team to get a good quality draft done. This is parallelisable - so 10 new drafts could get done in a month. The question is then one of whether it's possible to introduce a new Bill and get it passed within the short time available. There might be some pieces of legislation which are non-controversial, where this could indeed come about.
I wrote an opinion piece in today's Financial Express titled What now, UPA? about these questions. Now that the CPI(M) is out of the way, what is the task ahead of us in building the financial sector that India deserves?
Here's the quick summary. There is a big task ahead of us. A lot of it can be done without legislation. The pending Bills are on the right track. But they are only a small slice of the legislative agenda in financial sector reforms. The bulk of the work has yet to begin. For the fuller rationale about these issues in financial sector reforms, see the Mistry and Rajan reports.