GOI eyes SEBI’s surplus funds – Yet another question on autonomy


During the Union Budget presented earlier this month, the finance bill 2019-20 has proposed amending the SEBI act to constitute a reserve fund into which 25% of the annual surplus of the general fund (run by regulator) is credited. The remaining 75% will be then transferred to the Consolidated Fund of India (CFI, maintained by central government for its income and expenditure) after SEBI meets all its expenditure like salaries, regular bills etc. Earlier, the rule was that only penalties raised by SEBI were being credited to the CFI.

SEBI is of the opinion that transfer of its surplus funds to the CFI would mean the fees levied by the regulator on investors and traders would become an additional tax, which would create a perverse incentive for the government to generate more of such revenue. They also feel this would result in compromising their autonomy and its ability to function effectively towards its stated objectives and will hamper the progress of Indian securities markets.

SEBI's General reserve reportedly totaled Rs 3,800 crore in March 2019, up from Rs 3,500 crore at the end of the previous fiscal. SEBI may end up transferring around Rs 2,800 crore to the central government in the current fiscal. These funds are generated through fees charged by these bodies, unspent grants received from the government, or Budget surpluses.

As per Finance Ministry views, the idea behind the move was to address the issue of accumulation of huge surplus funds with SEBI. The Department of economic affairs (DEA) had checked with the law ministry, which felt the funds received by SEBI are public money and should be part of the public account. Government intends to utilize these funds for bridging fiscal deficit.

According to the CAG report, 14 regulators and autonomous bodies together hold surplus cash of Rs 6,064 crore as of March 2017. SEBI holds the highest surplus reserves, followed by Insurance regulatory bodies like IRDAI and PFRDA. These funds provide financial flexibility to these autonomous organizations.

This is, however, not the first time that the government at the Centre has gone after independent agencies.  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. Though the money involved in SEBI case would be extremely small compared to the RBI’s reserves, but the amendments could undermine SEBI’s autonomy as a market regulator.

Additionally, the Budget amendment also provides for the government’s approval of capital expenses to be incurred by the SEBI Board. Earlier, such approval was not needed. In our view, such proposal will NOT add any benefit to institutional efficiency and it will slow down decision-making, which can range from setting up IT infrastructure, expanding the organizational capacity, or any other physical and soft infrastructure that SEBI may require in the light of continuously evolving global securities markets.



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