In what could spark the souring of ties between the Centre and the Securities and Exchange Board of India (SEBI), the Finance Ministry has refused pleas from the capital markets regulator to amend the provision that mandates that about 75% of its surplus be transferred to the Centre’s coffers.
The Finance Bill 2019, passed by the Lok Sabha on Thursday, has a provision stating that the SEBI must set up a reserve fund into which 25% of its surplus is to be transferred. The remaining amount is to be transferred to the Centre.
“The [SEBI] Board shall constitute a reserve fund and 25% of the annual surplus of the general fund in any year shall be credited to such reserve fund and such fund shall not exceed the total of annual expenditure of preceding two financial years,” the Finance Bill says.
“After incurring all the expenses… and transfer to reserve fund… the surplus of the general fund shall be transferred to the consolidated fund of India,” it added. This decision has been opposed by the SEBI, with Chairman Ajay Tyagi meeting Finance Minister Nirmala Sitharaman earlier this week, and also writing a letter to the Ministry enumerating his objections. It is learnt that this letter is along the lines of the one written by SEBI employees earlier this month to the Prime Minister.
The decision, SEBI felt, would impinge upon the financial autonomy of the regulator, a complaint against the Centre that RBI has also raised in the past regarding its own funds. The recent tension between the RBI and the Finance Ministry was also about the transfer of reserve funds to the Centre, and what this implied for the central bank’s autonomy.
“Any move to transfer the surplus funds of the SEBI to the CFI will amount to the fee levied by the SEBI becoming a kind of additional tax on the market participants, and will result in a perverse incentive for increasing such generation of revenue for the government, limiting the flexibility of the SEBI to calibrate the imposition of such fees,” the employees’ association letter to Mr. Modi said.
“Further, the proposal will also impinge on the financial autonomy of the SEBI as it will have to seek government approval for capital expenditure, which can range from setting up IT infrastructure, expanding the organisational capacity, or any other physical and soft infrastructure that SEBI may require in the light of continuously evolving global securities markets to increasing its employee strength.”
Government officials said Mr. Tyagi also felt that including this provision in the Finance Bill, which would amend the SEBI Act, was premature since the issue was still under discussion in the Financial Stability and Development Council, the financial sector regulator.
The Finance Bill is a money bill. This means that, once passed by the Lok Sabha, it can become law unchanged even if the Rajya Sabha proposes to amend it. In effect, passing the Finance Bill in the Lok Sabha means that the government has chosen to ignore SEBI’s concerns.
(With Ashish Rukhaiyar in Mumbai)