Chidambaram alerts regulators on adverse effects of US monetary tapering

Finance minister P Chidambaram has raised the bogey of the US Federal Reserve's planned tapering of its programme of quantitative monetary expansion by early next year, warning that it could have adverse effects on fund flows to India and could therefore cause grievous injury to the economy.

Chidambaram has asked financial sector regulators Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), the Forward Markets Commission (FMC) and the Insurance Regulatory and Development Authority (IRDA) to be ready with measures to counter any adverse impact of US Federal Reserve's tapering of monetary expansion on the Indian economy.

Addressing the eighth meeting of the Financial Stability and Development Council (FSDC), Chidambaram said the tapering of quantitative easing (QE) in the US is likely to happen sooner or later and, as such, regulators must take all possible concrete measures to avoid any adverse impact on the Indian economy.

He said the opportunity that had been made available due to the postponement of the reversal of the monetary policies in advanced economies should be utilised to further address the macroeconomic imbalances in the Indian economy.

The council deliberated on the impact of tapering off of the US monetary expansion and preventive measures to be taken by regulators and government to facilitate a `Corporate Distress Resolution Mechanism' as laid-out in the Companies Act, 2013.

The council took stock of the progress in examining the report of the FSLRC, in pursuance of the decisions taken in the seventh meeting of the FSDC held on 3 June 2013.

Accordingly, all financial sector regulators, including FMC, will finalise an action plan for implementation of all the FSLRC principles relating to regulatory governance, transparency and improved operational efficiency that do not require legislative action.

Legislative recommendations on fine tuning the draft Indian Financial Code would be made on the basis of public comments and feedback.

The meeting also decided that action should be taken for finalising the roadmap for creation of new institutions such as Resolution Corporation, PDMA, FSAT and FDMC.

The council also discussed the corporate distress redressal mechanism laid out under the Companies Act, 2013 and identified the role of regulators / government to implement these provisions to prevent, as also to take remedial measures on, corporate distress.

The meeting also deliberated on the progress made by the FSDC sub-committee and its technical groups in a number of areas like drawing up a consolidated template for a bird's eye view of financial inclusion across different segments of the financial sector, remedial measures to address the deteriorating asset quality of public sector banks, and formation of state level coordination committees to curb the menace of unregulated companies collecting public funds.

The meeting was attended among others by RBI governor Raghuram G Rajan, finance secretary R S Gujral, economic affairs secretary Arvind Mayaram, financial services secretary Rajiv Takru, revenue secretary Sumit Bose, cooperative affairs secretary Naved Masood, SEBI chairman U K Sinha, IRDA chairman T S Vijayan, PFRDA chairman Yogesh Agarwal, FMC chairman Ramesh Abhishek and other senior government officials.