The regulation of the government securities (G-sec) market could be shifted from the Reserve Bank to the capital market regulator SEBI, Prime Minister's economic Advisory Council Chairman C Rangarajan today said.
"Eventually, separating it (G-sec management) cannot be ruled out...It can be separated... Government securities market can go to the market regulator (SEBI)," he said at an event here tonight.
However, given the importance of foreign exchange management in the economy, the regulation of foreign exchange market should continue with the central bank, Rangarajan said.
Noting that the role of financial sector is to support a smooth functioning of the real sector, he said, finding a balance between stability and efficiency in the financial sector was important.
However, pushing the financial sector beyond an extent might lead to instabilities in the system, Rangarajan said.
On capital flows, the former RBI Governor said foreign funds are flowing to the country due to a high growth potential of the economy.
However, in certain categories, the capital flows into the domestic market should be discouraged to financial stability in the system, he said.
While there is a need to closely watch the foreign fund movements, capital inflows in the current year is likely to be under manageable limits, he said.