Mark Carney, who takes charge as the Governor of the Bank of England today, was named for the top job seven months back. Now, the White House is said to be reviewing successors for Ben Bernanke, chairman of the US Federal Reserve, whose term ends in January 2014. India too will have a new RBI governor this September — but the government is yet to name Duvvuri Subbarao’s successor. Expectations are that finance minister Palaniappan Chidambaram, known for his ability to take quick decisions, will end the suspense soon. But that’s not good enough. As the US and British examples show, searches for key regulators need to begin early. Look at how much difference the predetermined time schedules for release of macroeconomic indicators has made. There’s now certainty, and analysts and markets know when to expect what. That’s what is needed for key appointments as well. Of course, picking the right person for a regulator’s job is even more crucial. A telling example is the selection process for the head of UTI MF whose shareholders include state-owned financial institutions. Controversies have delayed the appointment for over two years now. True, the decision rests with the UTI board, not the government. But isn’t leadership a must for sound investment decisions? India is not the only glaring exception. In the US too, the nomination of a Commissioner of the Internal Revenue Service has been delayed by over 14 months, stoking fears among some law firms over shutdown in decision making. “You’ve got a thankless, complex, under-resourced position. This is high risk, no reward,” a former IRS deputy commissioner was quoted as saying in a recent Bloomberg report. This is a one-off case, but such delays are avoidable. Take India’s insurance regulator Irda. It has been functioning without anyone to steer its actuarial department for over two years now. And that’s appalling. Appointing a Member, Actuary should be top priority for the Irda. The regulator should also strengthen the actuarial department. It needs the best talent not just to approve products designed by insurers but also to value insurers as the law requires Indian promoters of insurance joint ventures to dilute their stakes through initial public offerings. The demand for actuaries will rise when the insurance sector grows once the law is amended to raise the foreign direct investment limit to 49% from 26%. A lot more investment will come in, and companies with resources, innovative product ideas and experience in penetrating the market will drive competition. Actuaries can design and price these products to ensure that insurers have enough cash to pay out claims, and not go bust. Financial institutions too will need trained risk professionals. But we are woefully short of such qualified and experienced actuaries. There are only around 250, less than the number the US had before the Great Depression in 1929. The Institute of Actuaries of India has raised the bar to build a rich talent pool of these number crunchers, and that’s reassuring. Regulators should allow lateral entry in a big way and pay market-linked salaries to attract talent. Remuneration is still an issue in regulatory agencies, even after salaries were upped, based on the recommendations of the Sixth Pay Commission. The larger point is that India needs an army of qualified professionals in the financial sector, which has evolved over the last decade or so. Rightly, the government is nudging regulators to hire more professionals. In May this year, Chidambaram asked Sebi to increase the number of people it has to police the markets. Sebi’s staff strength is around 600 — the SEC in America employs more than 4,000 professionals. The Competition Commission of India (CCI) too is working with a lean staff. The number is below its sanctioned strength of 197 professionals. CCI chairman Ashok Chawla has commissioned a study by the Indian Institute of Management, Ahmedabad, to recommend future organisational structure. This is welcome. But any restructuring will be meaningless without talent. So, here’s hoping we get a good RBI governor, and also a big talent pool for all regulators, especially the newer ones.
Source :The Economic Times.
Date : 01/07/2013