Tag: regulation

Introducing BPS: Bill Payment at Source

A committee in the RBI has circulated a paper on a wonderful new idea of an Indian Bill Payment System through Government Internal Revenue Order system, i.e., IBPS-GIRO

Imagine a brave new world where you will pay every bill through IRCTC. IBPS-GIRO will be just like that, only better – because you can avoid travelling by trains, but how far will you go without paying your electricity bill?

May I be bold as to suggest a better idea? BPS: Bill Payment at Source. Instead of you first getting your salary and then logging onto IBPS-GIRO, and then paying your bill, the RBI should direct all utility providers to submit your bills directly to your employer who will automatically deduct the amount at source. This way, it will be one more hassle that the government will free you from.

In fact, the RBI can go two steps further and directly deposit the remaining amount, if you have any, into the National Pension Scheme (NPS.) After all, what is left after income tax, utility bills, EMI and saving for retirement?

Read the whole thing here: Report of the Committee to Study the Feasibility of Implementation of Giro Based Payment System in India They even have a logo mocked-up.


FLSRC: Government’s writ on monetary policy is suicidal

The sweeping recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) headed by Justice B N Srikrishna has stirred a hornet’s nest. Prima facie, the report gives an impression that it is aimed at clipping the wings of the Reserve Bank of India (RBI) Governor and seeks greater role for the government in financial regulation, especially in monetary policy affairs.

The Finance Ministry and the RBI Governor have always been at loggerheads. Current Finance Minister P Chidambaram’s run-ins with past Governor YV Reddy and his predecessor and current Governor D Subbarao is now part of financial folklore.

POLICY RATES OF COUNTRIES The proposals that have generated much noise are setting up of a unified financial regulator by subsuming current sectoral heads like Sebi, Irda, PFRDA and FMC. Regulators will no doubt be fuming, as they will be jobless once FSLRC proposals are implemented. It is debatable if multiple regulators have stifled growth in the financial sector or lack of innovative financial products.

But the over-arching proposals concerning greater accountability of the RBI and the government setting monetary policy goals for the central bank will have wide ramifications.

According to FSLRC, policy rates will be determined by a MPC (monetary policy committee) comprising of two members from the RBI and five members appointed by the government, thereby giving the government greater say over policy. This means, effectively, the RBI governor will no longer have the final word on monetary policy.

There is logic in this view, since in a democracy, an elected government must helm policy affairs. The objective that the central bank must pursue should be defined by the government. But vesting powers with the centre can be dangerous as politically-elected governments tend to favour cheap money policy, while economically sound central banks generally are far more conservative and look for macro-economic stability and not merely growth. Also, it is debatable if the government possesses the necessary expertise and domain knowledge to carry out monetary policy functions considering that they are not elected through merit.



The unified financial regulatory model has been prevalent in global financial system. But with global economy ravaged by one crisis after another, it is foolhardy to borrow a failed model. Rather, the Indian financial system, with its multiple regulators and stiff norms, had come in for immense praise after the global financial crisis in 2008. Isn’t it practical to stick to a model that has withstood the tough times?

The report said that there will be a quantifiable numerical target set by the government that must be met. In the Indian context, it is doubtful if it is feasible to set an inflation or growth target.


The committee has also suggested that the government will frame rules with respect to capital inflows like FDI, FII and NRI deposits against the present system of RBI. Four members of the panel have expressed their opposition to dilution of RBI’s powers on this front.

One area where unanimity seems to exist is the creation of a debt management office (DMO) for raising resources for the government which, at present, is managed by the RBI.

Many experts have warned of conflict of interest saying RBI’s role in monetary policy and managing the centre’s borrowing calendar may give the central bank a bias in keeping interest rates low. Creation of a separate agency will eliminate this loophole.

While FSLRC talks about accountability of the RBI, it is silent on seeking more answers from the government on fiscal policies. The government’s track record of fiscal deficit is there for all to see. The RBI, currently, enjoys the highest levels of credibility in the eyes of the public.


If the government, in its current form and public perception, takes control of monetary policy, the credibility and legitimacy of the entire process will be seen as suspect. Already, the government’s writ runs over financial regulators since almost all the current sectoral watchdogs are appointed by the government. Should we reward the government’s ineptitude with more responsibility? I think not!