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he regulatory framework for the financial system in India is overseen by multiple entities within the government

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12 views4 pages

he regulatory framework for the financial system in India is overseen by multiple entities within the government

Uploaded by

surajantil
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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he regulatory framework for the financial system in India is overseen by

multiple entities within the government, with key roles played by the
Ministry of Finance, its departments such as the Department of
Economic Affairs (DEA) and the Department of Financial Services
(DFS), and several regulatory bodies. Here's how the framework is
structured:

1. Ministry of Finance

The Ministry of Finance is the apex body overseeing the financial system
in India. It formulates economic policies, manages government finances,
and ensures smooth functioning of financial markets. The Ministry
operates through its departments:

a) Department of Economic Affairs (DEA)

 Role: Deals with economic policies, capital markets, external


borrowings, and financial legislation.

 Key Functions:

o Formulation of macroeconomic policies (fiscal and monetary).

o Management of capital markets, including the regulation of


stock exchanges.

o Overseeing foreign investments and external commercial


borrowings (ECB).

o Interaction with international financial institutions like the IMF


and World Bank.

o Implementation of the Foreign Exchange Management Act


(FEMA), 1999.

Example: The DEA played a key role in crafting the Atmanirbhar Bharat
Package (2020) to stimulate the Indian economy during the COVID-19
pandemic. It also handles India’s external borrowings, like issuing
sovereign bonds in global markets.

b) Department of Financial Services (DFS)

 Role: Oversees banking, insurance, and pension reforms, ensuring


financial inclusion and robust functioning of financial institutions.

 Key Functions:

o Policy framework for public and private sector banks.


o Regulation and promotion of insurance companies (in
coordination with IRDAI).

o Management of pension reforms and supervision of the


Pension Fund Regulatory and Development Authority (PFRDA).

o Implementation of financial inclusion initiatives like Jan Dhan


Yojana.

o Handling legislative matters related to the banking and


insurance sectors.

Example: The DFS implemented the Pradhan Mantri Jan Dhan


Yojana (PMJDY) in 2014, which brought over 50 crore unbanked
individuals into the formal banking system. It also supervises
reforms in public sector banks under the Indradhanush Plan.

Department of Revenue

 Role: Manages the country’s tax framework, ensuring the collection


of direct (income tax) and indirect taxes (GST).

 Example: The introduction and rollout of the Goods and Services


Tax (GST) in 2017 were driven by this department, simplifying
India’s complex indirect tax system and enhancing compliance.

d) Department of Investment and Public Asset Management


(DIPAM)

 Role: Deals with disinvestment of public sector undertakings (PSUs)


and monetization of government assets.

Example: The strategic sale of Air India to the Tata Group in 2021 was
overseen by DIPAM. It is also working on monetizing infrastructure assets
under the National Monetization Pipeline (NMP).

e) Department of Expenditure

 Role: Ensures efficient use of government resources, focusing on


fiscal responsibility and control.

 Example: During the pandemic, the department allocated funds for relief measures
under PM Garib Kalyan Yojana, including free food grains and direct cash
transfers.

2. Financial Sector Regulatory Bodies


These regulatory bodies operate under the purview of the Ministry of
Finance to ensure a sound financial system:

a) Reserve Bank of India (RBI)

 Regulates monetary policy, banking systems, and financial stability.

 Manages currency issuance and payments systems.

Example: The RBI launched the Unified Payments Interface


(UPI), which revolutionized digital payments in India, making the
country a global leader in real-time payment systems.

b) Securities and Exchange Board of India (SEBI)

 Regulates stock exchanges, mutual funds, and securities markets.

 Protects investor interests and prevents fraudulent practices.

Example: SEBI’s reforms, such as the introduction of Real Estate


Investment Trusts (REITs) and Infrastructure Investment
Trusts (InvITs), provided new investment opportunities and
boosted infrastructure funding.

c) Insurance Regulatory and Development Authority of India


(IRDAI)

 Supervises the insurance sector, ensuring its healthy growth and


policyholder protection.

Example: IRDAI allowed the launch of microinsurance policies for


rural and underserved areas, promoting financial inclusion. It also
facilitated the rise of online term insurance plans during the
pandemic.

d) Pension Fund Regulatory and Development Authority (PFRDA)

 Regulates pension funds and the National Pension System (NPS).

 Example: The introduction of the National Pension System


(NPS), which offers flexibility and tax benefits, has attracted
millions of subscribers, including government employees and the
private sector.

3. Key Laws Governing the Financial System


The framework is supported by various legislations, including:

 Reserve Bank of India Act, 1934: Governs the RBI’s operations.

 Banking Regulation Act, 1949: Regulates banking operations.

 SEBI Act, 1992: Establishes SEBI’s authority.

 Insurance Act, 1938, and IRDA Act, 1999: Regulate the


insurance sector.

 PFRDA Act, 2013: Provides a framework for pension regulation.

 FEMA, 1999: Manages foreign exchange and cross-border financial


flows.

4. Coordination Mechanisms

To ensure coherence among different regulators and the government, the


following mechanisms are in place:

 Financial Stability and Development Council (FSDC): Chaired


by the Finance Minister, it ensures financial stability and inter-
regulatory coordination.

 Standing Committees and Task Forces: Focus on specialized


areas such as fintech, climate finance, and digital banking.

This multi-layered structure ensures the effective regulation and smooth


functioning of India's financial system, addressing dynamic challenges in a
growing economy.

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