Mr Mukherjee, stay clear of regulators

Finance minister Pranab Mukherjee did not face too much opposition in the Lok Sabha on Monday when he introduced the bill to replace the ordinance issued in June to resolve the standoff over unit-linked insurance plans (Ulips).

Market regulator Sebi and insurance regulator Irda were earlier locked in combat over who should regulate Ulips.

The opposition was critical of the need for an ordinance and wanted to know why the bill could not have been brought earlier.

The BJP’s Nishit Kumar Dube suggested that as the new regulatory mechanism was located in the finance ministry, it would be much better if the many regulators were all disbanded and the ministry became the sole authority. Mukherjee had good humouredly disposed of the idea saying that the complexities of the market required a network of regulators.

While  arguing for the Securities and Insurance Laws Amendment and Validation Bill, 2010, Mukherjee assured members that the new regulator in the ministry which will decide on jurisdiction disputes will not function as a super-regulator.

He confessed that he had asked Sebi and Irda to file a joint petition with the high court but the two refused to do so. That is a strange confession from a man who is in control of so much in the UPA government. Had the matter gone to court, a judicial ruling laying down the criteria would have been useful for companies selling Ulips as well as the retail buyers.

The larger issue is this: while the new bill allows the finance ministry to step in to resolve disputes between regulators, it is still a sub-optimal solution. Regulatory issues should be settled by someone who’s at an arm’s-length distance from the politicians who run the ministry. That’s the only way to guarantee some measure of independence.