December 22, 2019

An Authority with Unfettered Rights

C P Krishnan


INTERNATIONAL Financial Service Centre Authority bill, 2019 has been introduced in the Lok Sabha on December 11, 2019 and passed.  This bill was earlier introduced in Rajya Sabha in the month of February 2019.  Now this has been withdrawn and introduced in Lok Sabha as money bill, the obvious reason being to skip its passage in Rajya Sabha where the ruling combination does not enjoy comfortable majority.  The very aim of this bill is to “enable Indian corporates easier access to global financial markets” as has been admitted by the “statement of objects and reason” of the bill.

For the past more than 10 years, the World Bank has been pressurising India to set up an International Financial Services Centre. An expert panel headed by former World Bank economist Percy Mistry submitted a report to open an International Financial Services Centre (IFSC) in Mumbai in 2007. Such a centre will not only enable Indian corporates to global financial markets, this will also open Indian market to foreign corporates. Earlier in the year 2006, the Second Tarapur Committee (headed by S S Tarapur, former deputy governor of RBI) once again recommended capital account convertibility, thus fully opening the Indian market to the global players. However, the global financial crisis that unfolded in 2008 made countries including India under the UPA-1 regime cautious about rapidly opening up their financial sectors and hence the idea of opening an International Financial Service Centre in Mumbai was shelved.

Fund-raising services for individuals and corporations, asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds, wealth management, global tax management and cross-border tax liability optimisation, which provides a business opportunity for financial intermediaries, accountants and law firms, global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching, risk management operations such as insurance and reinsurance, merger and acquisition activities among trans-national corporations are some of the services that International Financial Service Centre can provide.

The SEZ (Special Economic Zone) Act 2005 allows setting up an IFSC in a SEZ. As per the SEZ Act, there is an exemption from the securities transaction tax levied under Section 98 of the Finance Act, 2004, in case taxable securities transactions are entered into by a non-resident through an IFSC. Naturally the government of India prefers to open an IFSC within SEZ in order to help the Indian corporates who are ‘wealth creators’ according to them.

Within a year of coming to power, in April 2015 itself, the Modi-I government set up an International Financial Services Centre in Gujarat International Financial Tec (GIFT) City, Gandhi Nagar, Gujarat.  Broadly this centre has been governed by Reserve Bank of India, Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India (IRDAI).

In the statement of objects and reason of this bill it has been further stated that “The development of financial products and services in International Financial Services Centres require focused and dedicated regulatory interventions and require a high level inter-regulatory coordination. It is, therefore, decided to establish a unified financial regulator to provide world class regulatory environment to such financial market participants and promote ease of doing business.” Thus in effect these governing laws are made ineffective.

The intention of the BJP government is to create an authority with unfettered right. For that purpose 14 Acts namely 1.Reserve Bank of India Act, 1934, 2.The Banking Regulation Act, 1949, 3. The Deposit Insurance and Credit Guarantee Corporation Act, 1961, 4. The Foreign Exchange Management Act, 1999, 5.The Credit Information Companies (Regulation) Act, 2005, 6.The Government Securities Act, 2006, 7. The Payment and Settlement Systems Act 2007,  8 The Securities Contracts (Regulation) Act 1956, 9.The Securities and Exchange Board of Act, 1992, 10.The Depositories Act, 1996, 11.The Insurance Act, 1938, 12.The General Insurance Business (Nationalisation) Act, 1972, 13.The Insurance Regulatory and Development Authority Act, 1999, 14. The Pension Fund Regulatory and Development Authority Act, 2013 governing banking, capital market, insurance and pension fund are amended in such a way that the powers of these Acts are completely withdrawn with regard to International Financial Services Centre and the authority proposed under this bill will have absolute power.

The performance of the authority will be reviewed by the Performance Review Committee consisting of two members from the same Authority.  The Performance Review Committee shall make the review once in every financial year and submit a report of its findings to the authority which shall forward a copy thereof along with action taken, if any, to the central government within a period of three months of the date of receipt of the report. Thus there is no independent oversight agency to inspect or review the performance of this authority.

According to clause 20 of this bill “Every transaction of financial services in an International Financial Services Centre shall be in foreign currency”; yet the Foreign Exchange Management Act has no power to regulate these transactions.

According to clause 30 of this bill “The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law”.  This clearly reveals that this Act will have unfettered right with regard to IFSC.

Clause 25 of this bill provides total immunity.  According to this “No suit, prosecution or other legal proceedings shall lie against the central government or the authority or its members, officers or other employees, for anything which is done, or intended to be done, in good faith under this Act”. That means that this authority is not accountable to any of the law enforcing agencies or laws of the land be it CBI, ED or Prevention of Money-laundering Act 2002, Prevention of Corruption Act 1988 etc. This clause is really dangerous.

This bill is a further step towards liberalisation of International Finance and Capital Account Convertibility.  This Authority is created out and out to help the corporates to exploit the global market.

While opposing this bill in the Lok Sabha, Su Venkatesan, CPI(M) MP said that if our country could withstand the East Asian crisis, 1997 or the Global Financial crisis, 2008 to a large extent, it is because of two reasons; the first one was due to strong public sector financial institutions and the second one was due to many regulating laws and institutions. If all these law enforcing agencies and Acts are made powerless and an authority with absolute power is created, it would greatly endanger the interest of our country. He further stated that Clause 25 provided total immunity to the executives of the authority and to the central government and that would seriously affect our economy. Hence he appealed to the government to refer the bill to select committee.  But the BJP government, brushing aside the voice of the opposition, passed the bill in the Lok Sabha.  The ill effects of the bill will unfold in the days to come.