Govt calls for transfer of Sebi’s surplus into its consolidated funds
NEWDELHI: The Centre is pushing ahead with its plan, underlined in Union Budget 2019, to transfer 75% of market watchdog Securities and Exchange Board of India’s (Sebi) surplus to the Consolidated Fund of India, two government officials familiar with the plan said, adding that other financial sector regulators such as the Insurance Regulatory and Development Authority (Irda) and the Pension Funds Regulatory and development Authority will also be required to do so.
Sebi and some of the other regulators initially opposed the plan, citing concerns about loss of autonomy, but the government wants to go ahead with its plan, and finalise the transfer before the next budget is presented on February 1, 2020.
The move would appear to be motivated by a desire to streamline processes and address issues raised in a report by the government’s auditor Comptroller and Auditor General (CAG).
If the transfers happen, a few thousand crores will be added to the Consolidated Fund of India (CFI), which won’t hurt the cause of the fiscal deficit, although it won’t make a material difference. “There has been some resistance by certain regulators on the grounds of independence, but the government is of the view that merely drawing money from CFI for salaries and other expenditure will not curb their independence. Even, the judiciary gets money from CFI without compromising its independence,” one of the officials said on condition of anonymity.
The second official, who too asked not to be named, said the issue regarding Sebi’s surplus has been settled with an amendment in the section 14 of the SEBI Act, 1992. The regulator has no choice but to comply with this, he added.
According to the amended law, Sebi can keep only 25% of its annual surplus, which should not exceed its total annual expenditure in the preceding two financial years. The balance shall be transferred by the market regulator to CFI.
According to the officials,
Sebi’s surplus was ~3,606 crore as on March 31, 2018.
Email queries sent to the finance ministry, DEA, Sebi and Irda did not elicit any response.
A 2016-17 audit report of CAG titled “Accounts of the Union Government” said that 14 regulators had a corpus of ~6,064.08 crore as on March 31, 2017, which should be factored in the government’s revenue stream, in keeping with an older January 2005 order of the Department of Economic Affairs (DEA). According to the CAG audit report for 2016-17, Sebi had a surplus of ~1,672 crore and Irda, ~1,322 crore.
“Fourteen regulatory bodies and autonomous bodies, which also act as regulators in their respective fields, had retained funds generated through fee charges, unspent grants received from Government of India, interest accrued on Government grants, receipt of license fees, corpus fund, etc. aggregating to ~6,064.08 crore at the end of March 2017, outside the Government Account, contrary to the instructions issued by the Ministry of Finance in January 2005,” the CAG report said.
In January 2005, DEA directed all government departments to ensure that funds of regulatory bodies were maintained in the Public Account, the report said.
A spokesperson for Trai said the matter is settled and the regulator is “comfortable with the government’s arrangement” as it keeps all its funds in the Public Account.
L Viswanathan, partner, Cyril Amarchand Mangaldas said, “Transfer of funds from independent regulatory agencies to the government should be explicitly dealt with in the statutes that govern regulatory bodies.”
“The philosophy underlying the transfer of funds should consider the need for autonomy of the regulatory bodies, accountability of statutory bodies and that the consolidated fund/ public account of the Union/state is the repository of public funds. There is a recent precedent of the process followed by the Ministry of Finance and RBI by jointly constituting a committee for distribution of surplus with the RBI,” he said.