The RBI and the government are expected to release a report later this month on the state and resilience of the Indian financial system. Believed to run into 2,600 pages and weighing in at 15 kg, it is likely to present a rosy picture. But even if it does not, and, significantly, even if its conclusions were to be sound, the fact that the government prevented independent experts from international bodies and members of standard-setting bodies from participating in the assessment exercise would undermine the report and send out wrong signals.

As reported by the Hindu Business Line (February 2), the report by the Committee on Financial Sector Assessment is an exercise the Indian government chose to undertake on its own, instead of agreeing to an assessment under the Financial Sector Assessment Programme (FSAP) by the IMF and World Bank done for member countries. The self-assessment committee, which includes top officials from the RBI and ministry of finance, is reported to have found that “the financial system is essentially sound and resilient, and that systemic stability is robust. Compliance with international standards and codes is generally satisfactory, and India is broadly compliant with most of the standards and codes.”

Why did the government and RBI choose to do a “self-assessment” when more than two-thirds of IMF / World Bank member countries chose independent expert assessments through FSAPs? India’s actions raise a number of questions. How are these actions consistent with our position that there should be greater international supervision of financial systems in countries whose regulators and governments did not alert the world to the problems in their financial systems? If countries with sophisticated regulatory systems need independent assessments, why doesn’t India?

... contd.