‘Will clear doubts on RBI Act changes’

Amid apprehensions that a Finance Bill provision may lead to RBI losing regulatory powers for money market securities, Finance Minister Arun Jaitley on Saturday said that any ambiguity in this regard will be duly discussed in Parliament. Jaitley, who was here on Saturday to meet foreign portfolio investors at the NSE, said, “I don’t want to talk about that (provision) outside (Parliament). If there is any ambiguity about the Finance Bill, we will discuss that in Parliament.”

The minister was replying to a question about the government’s move, as mentioned in the Finance Bill but skipped in the Budget speech, to take the regulation of the money markets from the Reserve Bank and give it to capital markets watchdog Sebi. Jaitley did not elaborate on this and also parried questions on tax issues related to foreign portfolio investors (FPIs).

Sources said that the minister met around 50 odd FPIs and is said to have allayed their fears on the notice they got from the CBDT on MAT. The minister was accompanied by Finance Secretary Rajiv Mehrishi, and Joint Secretary Manoj Joshi. Senior officials from Morgan Stanley, UBS, and Principal Global among others were present.

Even RBI Governor Raghuram Rajan had expressed some doubt about the issue, saying that nothing was mentioned in the Budget speech earlier this week. “There are some clauses in the Finance Bill referring to this. But the finance minister’s speech did not contain any reference to this; the speech generally flags the important actions of the government. I am not worried this will happen,” Rajan had said.

During the Budget speech, Jaitley said that the Government and RBI had on February 20 signed a framework agreement to set up a monetary policy committee, under which Parliament would set an inflation target to RBI, apart from setting up a separate agency, PDMA (Public Debt Management Agency), to manage government borrowings and other public debt by amending the RBI Act.

Analysts said that though both the moves were mooted by the RBI — the monetary policy committee by Governor Rajan following the Urjit Patel committee report and the PDMA by then governor Bimal Jalan way back in 2002 — these moves will take away some crucial powers of the central bank. 

Under the present system, the money markets are controlled by the RBI, but mutual funds, which are major players in the money market, are regulated by Sebi. In the customary post-policy con-call with analysts on March 4 when Rajan surprised the markets with a 25 bps reduction in the repo rate to 7.5 per cent, the Governor said that the proposed PDMA will not be clipping the RBI wings and he is not worried about the move.