Centre pushes for transfer of Sebi’s surplus into its accounts
New Delhi: The government 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, 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 (Consolidated Fund of India) 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.
The second official explained that the government is streamlining its income and expenditure streams ahead of finalising its revised budget estimates for 2019-20 and budget estimates for 2020-21.
“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.
Regulators such as the Telecom Regulatory Authority of India (Trai) complied. 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.
To be sure, RBI’s case is unique because apart from being the banking regulator it is also the central bank. On August 14, 2019, a committee headed by former RBI governor Bimal Jalan recommended transferring a sum of ~1,76,051 crore to the government, comprising ~1,23,414 crore of surplus for the year 2018-19 and ~52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF). On August 27, RBI’s board decided to transfer the sum. The committee was set up after RBI and the government disagreed on the need for such a transfer.
Viswanathan said the mechanism in the statutes should strike the right balance between providing autonomy to the regulators, whilst ensuring their accountability and adhering to the constitutional mandate that public funds must be dealt with under the authority of law.
According to CAG, the Constitution of India provides for creation of three types of accounts -- the Consolidated Fund of India, the Contingency Fund, and the Public Account. All revenues received, loans raised and all money received by repayment of loans are credited to the Consolidated Fund of India. All other money received by or on behalf of government is credited to the Public Account. The Contingency Fund enables the government to meet unforeseen expenditure that cannot wait approval of the Parliament.