Sebi to transfer ~17 bn surplus to Centre

Extra funds with regulatory bodies have been a contentious issue for years

Capital markets regulator, the Securities and Exchange Board of India (Sebi), has agreed to transfer ~16.7 billion of its surplus funds to the government. The Centre has been eyeing these resources, which would enable it to reduce the fiscal deficit.

The move, however, was seen as contentious as it potentially amounted to an infringement on the independence of the regulatory body.

“Sebi has agreed to the long-pending government demand to transfer surplus funds with it into a public account,” said a source.

The surplus funds with Sebi — and over a dozen other regulators such as the Insurance Regulatory and Development Authority of India (Irdai) and Pension Fund Regulatory and Development Authority (PFRDA) — were pointed out in a report by the Comptroller and Auditor General of India (CAG).

According to a 2017 report of the CAG, these regulatory bodies together hold surplus cash of ~60.6 billion as of March 2017.

These funds are generated through fees charged by these bodies, unspent grants received from the government, or budget surpluses, among others. Surplus funds, which get accumulated over a period of time, provide financial flexibility to these autonomous organisations.

Typically, these funds are used for capacity building, developing infrastructure, and expansion of the organisation. On many occasions in the past, the Centre has eyed these funds to shore up its resources, only to face resistance from these autonomous regulatory bodies.

“In the past, regulatory bodies, including Sebi, have been reluctant to share their surplus revenue with the government. As the legal provisions around such transfers are not clear, the government requests have got lost in consultations. Recently, after extensive discussion with the regulators, ministries and other parties involved, things seem to be shaping up in a positive manner,” said an official in the Ministry of Finance.

In 2017-18, the Centre has been facing constraints on the fiscal front, with revenues declining due to the implementation of the goods and services tax (GST), the slowdown in the economy, and decline in dividend paid by the Reserve Bank of India (RBI) due to demonetisation.

Sources said this time around, Sebi has not objected to the government’s proposal on transfer of funds. The regulator plans to change the accounting guidelines to facilitate the transfer.

“Since the new Sebi chairman, Ajay Tyagi, has been part of the finance ministry in his earlier assignment, he understands the government’s intention and challenges,” said the source cited above.

An email sent to Sebi remained unanswered.

The issue of retention of surplus funds was first highlighted in 2008 by the CAG.

In 2009, the finance ministry proposed to open accounts in the non-interest bearing sections of the public account of India to move these funds. These accounts were finally opened in 2013-14. However, no funds have been deposited in it so far.

U K Sinha, former chairman, Sebi, who was against such a transfer during his sixyear tenure, said the proposal was an infringement on the regulator’s independence.

“Financial independence is the very basis for regulatory independence. That is why Parliament has approved conscious and categorical provisions for a separate fund while passing the Sebi Act. Advice was received from two different attorneys generals at different point of time, who said the current arrangement is constitutionally valid and correct,” he told Business Standard.

Sinha is of the view that the government should convince the CAG and not go after these funds, as the move will affect the independence of regulators in the country.

In July 2017, the Department of Economic Affairs (DEA) had cited the opinion of the attorney general to the government and the CAG on this issue: “Sebi is not obliged to remit from its general fund to the public fund account under Article 266(2) of the Constitution of India. Therefore, it would not be appropriate to deviate from the legislative intent of Parliament as elucidated in Section 14 of Sebi Act, 1992.”

The DEA had added in order to address the issue of accumulation of huge surplus funds, the department was considering to amend the Sebi Act to the effect that surplus funds might be transferred to the consolidated fund of India, as in the case of the RBI.